Leveraged ETF Decay Explained (with Visual)

Is this guy telling the hard truth?

I always dreamt of becoming a multi millionaire in 5 to 10 years but this guy has brought an interesting point to the table:
Day Trading Market Ceiling There also a Day Trading Market Ceiling. A successful day trader (not an investor, though) will eventually get capped out, as the market simply can’t accommodate an infinitely increasing position size for a particular strategy. To make more the trader either needs to alter the strategy, or also trade something else…and this may or may not work. Change one thing and you can’t assume all else will stay the same. To attain the returns discussed in the “How Much Day Traders Make,” multiple trades are made each day. Trades are likely only lasting a couple minutes. While multiple-millions of dollars worth of stocks, futures or currencies may change hands over the course of couple hours, day traders have precise entry points. Therefore, position size is limited to the amount of liquidity (volume) available at the exact moment a trader needs to get into and out of trades. Investors, hedge funds and mutual funds can accumulate or dispose of positions over weeks, taking advantage of days or even weeks worth liquidity. Day traders don’t have that luxury. It doesn’t matter if a stock trades millions of shares a day; if there is only 100 shares available when they need to take the trade (based on the strategy) that’s all they get. That’s an extreme example, but at any given moment there isn’t infinite liquidity available–there is what there is, and that means there is a limit to how big of a position you can accumulate and dispose of when your strategy calls for it. Based on personal experience, in day trading forex I wouldn’t be comfortable taking more than 5 standard lots on a day trade. Some may take more, most traders would take way less. Taking a larger amount would mean significantly increased risk of slippage or partial fills (you end up with the whole position on losing trades, but only partial positions on some winning trades). Possible gains attained by taking a larger position are offset by these negative factors. At 10:1 or 15:1 leverage a forex day trader–using a day trading forex strategy similar to mine— may cap out at around a $50,000 to $75,000 account (including leverage, that means trading close to $1million). Beyond that, they may find little additional gains, unless they alter their strategy, take longer term trades or stagger their entries and exits at various prices. Changing a strategy to accommodate a larger position isn’t a bad thing, but it takes additional research/practice time…and is it worth it? Only each individual can answer that for them self. In the ES futures market I cap out at about 10 contracts, and that only requires a $40,000 to $75,000 account (maybe even less depending on how much you risk per trade). There is no reason to trade more in my opinion. Could you day trade more contracts? Sure, you could probably get away with 100 contracts some days/some trades…but why? It would take a long time to work up to carrying those sorts of positions, and even trading a few contracts can produce a good living. The same goes for the stock market. Even in a very liquid stock or ETF like the SPDR S&P 500 (SPY) you will hit a limit on how much you can effectively trade on a short time frame. It may be a big limit, but you do hit it. To see the minimum amount of capital you need to day trade, see How Much Do I Need to Become a Day Trader. The bottom line is that you hit a limit on the amount of capital you can utilize effectively, and beyond that your percentage returns will likely decrease. For example, it’s much easier to make 10% a month on a $20,000 account than it is to make 10% a month on $20,000,000. That means day trader tend to withdraw all proceeds over and above their “efficient capital limit.” So a $50,000 day trading forex accounts stays a $50,000 account and monthly profits are withdrawn and spent (like any other job) or allocated to something else. In other words the account doesn’t keep compounding indefinitely, the trader nor the market can withstand doing that…there are ceilings…psychological, natural (life) and structural (market).
Source: https://vantagepointtrading.com/why-day-traders-can-make-big-returns-but-arent-millionaires/

The entire article is a good read. Go read it. But in a way this shattered my dream. So tell me is this guy telling the hard truth or just bull shitting?
He also says that he has met a lot of day traders and most make between 50,000 to 200,000 per year. So aiming for that is a more "realistic goal" then making close to a million dollar per year.
submitted by geardrivetrain to Daytrading [link] [comments]

Explained: Should I invest in leveraged ETF if the stock market will go up the next few decades? The Pros & Cons of Using Leveraged ETFs In Your Trading & Investing Understanding Leverage in Forex Trading and the Dangers of Margin Trading What is slippage? What is a Guaranteed Stop Order? How Frequent is Slippage in Practice? How Inverse And Leveraged ETFs Actually Work - Show #027 - Option Alpha Podcast The Hidden Dangers of Leveraged ETFs: Why Leveraged ETFs ...

Partial truth: Beta slippage can help leveraged ETFs during a bull market In a 2013 article , Fred Piard states: A leveraged ETF in a steady bullish trend may outperform its leveraging factor. Slippage can be a common occurrence in forex trading but is often misunderstood. Understanding how forex slippage occurs can enable a trader to minimize negative slippage, while potentially ... Thus, for example, whereas the base strategy-based maintenance margin requirement for a non-leveraged long ETF is set at 25% and a short non-leveraged ETF at 30%, examples of the maintenance margin change for leveraged ETFs are as follows: 1. Long an ETF having a 200% leverage factor: 50% (= 2 x 25%) 2. Short an ETF having a 300% leverage ... When you begin to trade Forex, you are inundated with a whole host of new terms. One of the ones that you will most certainly run into is what is known as “slippage.”Simply put, slippage is a difference between the price you see and the price that you pay. Leveraged ETF Decay Explained. by ETF Base on January 13, 2010. While the leveraged ETF can fill a need in the day trader’s arsenal or be utilized for a once in a blue moon trend trade, they are certainly not suitable investments for an investor with a time horizon any longer than a week. Due to the decay in share price value that occurs as a result of daily volatility, both the long and ... The second, XYZ, is a leveraged ETF that returns two times the Big Index. Both the ABC and XYZ ETFs start off trading at $10 per share. Day 1, the Big Index is up 25%. The next day, the Big Index ... Leveraged funds are highly volatile, with 90% draw-downs and 16+ year recoveries. But leveraged funds can outperform their leverage in markets with clear direction and low volatility. Leveraged ETFs are exchange-traded funds that are structured to amplify the daily returns of an underlying index. They combine the convenience of ETFs with the leverage typically associated with more complex financial products. How leverage in ETFs Works Leverage, also known as gearing, is used by traders and investors to increase potential returns. If you want 10x go balls deep in forex. Shit even 50x, maybe even 100x. level 1. 2 points · 3 years ago. trade forex leveraged. level 1. 2 points · 3 years ago. UVXY is effectively 6x, trade it with naked calls on portfolio margin. level 1. Oil Genius. 1 point · 3 years ago. There would be too much slippage between the price of the ETF and the underlying x the ETF is trying to model as a*x ... The term slippage is something you will often hear reference to if you are trading forex, or perhaps when you are researching with the intention of joining a new forex broker, or trying out a new trading platform. Digging a little deeper to define what slippage actually is, and the explanation is quite simple. Slippage […]

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Explained: Should I invest in leveraged ETF if the stock market will go up the next few decades?

No this is not to say that you shouldn’t trade inverse and leveraged ETFs because I have before and will in the future. Instead, my goal is to make you smarter about how they derive their ... Leveraged ETFs - Opportunities, Risks and Dangers. http://www.financial-spread-betting.com/Exchange-traded-funds.html PLEASE LIKE AND SHARE THIS VIDEO SO WE ... IG is now an award-winning, multi-platform trading company, the world’s No.1 provider of CFDs* and a global leader in forex. It provides leveraged services with the option of limited-risk ... Leverage can vary hugely from one broker to another; the standard leverage in the forex market is 1:200 leverage. So if you're trading a $100,000 or 1 lot in MT4 terminology, then you would have ... This video attempts to both debunk as well as confirm some of the negative stigmas associated with buying & holding leveraged ETFs for more than a day trade. Real-world examples are used with two ... What is Slippage in Forex Trading? 🤔 - Duration: 8:00. UKspreadbetting 3,302 views. 8:00. How does spread betting work? ... Leverage Trading for Beginners - Etoro - Duration: 11:39. Social ... Explained: Should I invest in leveraged ETF if the stock market will go up the next few decades? ... 95% Winning Forex Trading Formula - Beat The Market Maker📈 - Duration: 37:53. TRADE ATS ...