With leveraged ETFs, LongPoint ETFs stress the importance of actively monitoring your investments and that leveraged ETFs are intended for short term use. This is critical as active investors look for volatility and price catalysts as an opportunity when deciding to enter the market. When volatility increases, while a benefit when you are trading in the right direction, prices can move quickly either up or down.

We have been asked by active investors if there is an easy-to-use trading strategy that offers some protection if a trade is moving against them.

A stop-loss order is an effective tool to take the emotions out of investing and provide a back stop to your trading strategy. A stop-loss order is a risk-management tool used in trading that automatically sells a security once it reaches a selected price, known as the stop price. This order is designed to limit potential losses by converting them to a market order when the stop price is met, ensuring the security is sold at the next available price. Essentially, it helps investors manage their risk by preventing further losses in a declining market.

There are downsides to stop-loss orders to consider. Keep in mind that if a stock's price gaps past the stop price, the order triggers, and the security is sold at the next available price, regardless of a sharp price move. Another disadvantage is missing out on a quick reversal and locking in a loss in a choppy market that quickly reverses in the direction that was beneficial to your ETF.

As a reminder, keep these trading tips in mind when entering into an ETF position.

ETF Trading

1. Always use limit orders.  You can set the limit order as you see fit, keeping in mind that a limit trade outside of current trading may not get filled and will need to be reset. Think of a limit order as being free protection against a bad trade fill.
2. Don’t trade at the open.  As ETFs are priced based on their underlying portfolios, wait at least five minutes for the underlying securities to start trading and factor into the ETF’s price.
3. Don’t trade at the close. ETFs and underlying securities can be more volatile heading into the close, so get your trade entered at least five minutes before the close.
4. Try to trade when the underlying securities are trading. Spreads will be wider when the underlying securities are closed, as pricing becomes less predictable.  Try to trade ETFs with international securities in the morning and consider holidays when trading ETFs with U.S. securities.

LongPoint ETFs offers Canadian domiciled ETFs traded in Canadian dollars on the TSX including leveraged and inverse ETFs under Savvy (2X) and Mega (3X) branding.