Price Mechanism of Leveraged ETF
The essence of ETF leveraged tokens is to ensure that ETF holders enjoy a fixed target multiple of each return on the underlying asset by fixing the return of the leverage base. This fixed leverage base is managed by the platform or fund managers approved by the platform. The platform announces the net value of the fund in real time to maintain a high degree of transparency.
In theory, the net worth is the fair transaction price of ETF shares in the secondary market. However, due to fluctuations in market sentiment, there may be a case where the transaction price of the secondary market deviates from the fair price (net value of the fund) at a certain period, resulting in a certain premium.
When a premium exists, there will be arbitrage opportunities, and arbitrageurs in secondary markets can gradually eliminate the premium through arbitrage operations to ensure that the token trading price closely follows the fair price. For ordinary users, it should be noted that their order price should not deviate too much from the net value, otherwise they will suffer greater losses.
Rebalancing Mechanism of Leveraged ETF
Under normal circumstances, the platform will rebalance at 0:00, UTC every day to ensure that the combined leverage ratio does not deviate too much from the agreed ratio. And when there are severe fluctuations, if the target asset's fluctuation range exceeds the given threshold compared to the previous rebalance point (in the initial stage, we set the threshold to 15% for 3 times long and short, we will also temporarily rebalance to control The risk of the portfolio. The temporary rebalancing is only for the party that has suffered a loss due to this fluctuation, that is, if BTC rises to 15%, we will rebalance the 3x leveraged ETF and do not adjust other products. Please note that If the market trend is continued after the unbalanced trigger is triggered, the user's loss will be smaller, but if the market trend is reversed immediately after the trigger, the speed of the product's rebound will also be weakened due to the rebalancing of the position.
As mentioned earlier, if the daily leveraged ETF makes a profit, it will reinvest the profit. If there is a loss, some positions will be sold to recover to 3 times leverage to avoid the risk of forced liquidation.
- None of the above descriptions constitute investment advice. Leverage tokens are highly volatile and are high-risk products. Before trading, you need to thoroughly read the product information and understand the basic working principle of the product. The product may bring substantial gains or losses within a single day.
- Leverage tokens greatly reduce the risk of liquidation of liquidation, but cannot be completely avoided; please pay attention to the difference between net value and price to avoid losses.