The leveraged ETF product is a new innovative financial derivative product launched by BigONE. It‘s operation logic is consistent with the spot, it can be simply understood as the ETF version of spot trading
The only different from the traditional spot trading is that ETF products have 3 times leverage attribute, named by currency + multiple + long and short direction. For example, BTC3L is expressed as a 3x leveraged long Bitcoin, and L is the abbreviation of Long. BTC3S is short for Bitcoin with 3x leverage, and S is the abbreviation of Short. For example: if BTC rises by 1% on the day, the net value of BTC3L will increase by 3%, and the net value of BTC3S will decrease by 3%. If BTC falls by 1% on the day, the net value of BTC3L will decrease by 3%, and the net value of BTC3S will increase by 3%.
It can be concluded that the rise and fall of the spot price of the underlying currency is the main reason for the profit or loss of the ETF, which is reflected in the rise and fall of the net value. Therefore, when trading ETF, you need to pay attention to the changes in the net value.
The logic behind the change in net worth is the rebalancing mechanism. There are two types of rebalancing mechanisms for BigONE’s innovative ETF products:
1. BigONE's innovative timing conditional rebalancing changes the traditional ETF's daily mandatory rebalancing at 00:00.
Timed conditional rebalancing will be selectively triggered at 00:00 every day according to specific conditions. If the conditions are met, the rebalancing management will be carried out. If not, it will not be carried out.
2. Unscheduled rebalancing mechanism
When the fluctuation of the underlying currency exceeds the 15% threshold on the day, the temporary rebalancing mechanism will also be triggered. It can be seen from this that in extreme market conditions, although ETF products will not be liquidated, it will cause a large amount of net worth wear and tear, making your assets infinitely close to zero.
It should be noted in the rebalancing mechanism that since the rebalancing is triggered when the price falls, even if the price of the underlying currency is adjusted back to the original price, the ETF product cannot return to the net cost.
The advantages of ETF products are summarized as follows:
1. ETF products will never be liquidated, no matter how the market price changes, the number of holdings will not change.
2. ETF products do not need to pay a margin, and the 0.1% daily management fee already includes all costs, including contract market fees and funding rates, as well as the loss of price differences in opening positions.
3. When the profit of the ETF product reaches the rebalancing condition, the profit part of the position will be automatically merged into the principal to increase the position to achieve the effect of compound interest; on the contrary, when the loss reaches the rebalancing condition, the ETF product will also automatically reduce the position, slowing down the market on the position , save funds to wait for the next wave of the market.
At the same time its disadvantages are:
1. ETF products are inherently leveraged and have high risks, so they need to be traded under the guidance of professional investors.
2. ETF products are suitable for professional investors, used for risk hedging, or short-term unilateral market investment, not suitable for medium and long-term investment.
3. Because of the existence of the rebalancing mechanism, the longer the time is, the greater the fluctuation will be, and the more funds will be worn out. ETF products are high-risk products.
ETF products are high-risk products. They have more prominent advantages in unilateral market conditions and are at a disadvantage in volatile market conditions. Please allocate funds reasonably, assess risks, and invest prudently according to market conditions.