Energy Traders Will Love This Leveraged ETN List!
While the basic ETFs discussed in those recent articles are highly useful in various situations, they’re not as exciting as the ones we’re looking at today.
I’m talking about leveraged ETNs…
Through the use of leverage, ETN providers have found a way to give traders a chance at spectacular gains in a short amount of time. You’ll see more details in a minute, but leveraged ETNs are designed to multiply (2X and 3X) the daily performance of an underlying index.
And while there are leveraged ETNs for nearly every industry, the ones we’re interested in today are energy focused.
Now, before we continue, we need to discuss a very few important things to keep in mind when trading leveraged energy ETNs…
First of all, they’re very volatile relative to their normal leverage ETF/ETN counterparts.
And that means it’s essential you be disciplined with your trading plan. Always use a stop loss and never put on a position too large for your account with leveraged ETNs.
This is one area of the market where losses can mount up quickly if you’re not careful!
Secondly, leveraged ETNs are for short-term traders only. These products are designed to track a specific commodity accurately on an intra-day basis only.
Over longer periods of time, leveraged ETNs tend to experience substantial tracking errors. This is especially the case when a commodity is stuck in a range bound trading pattern.
And finally, since your money should be moving in and out of leveraged ETNs quicker than the basic leverage counterparts, an ultra-low expense ratio isn’t quite as important.
That’s why you’ll find products below have an expense ratio of 2.0% or less.
Now that you know a few basics about leveraged ETNs, let’s discover the best ones for trading the energy markets…
Leveraged ETN List: Crude Oil
Bullish- When the price of oil rises, these products below will rally along with it.
ProShares Ultra DJ-UBS Crude Oil $UCO— This is a great 2x leverage ETN for anyone bullish on oil. It has plenty of liquidity and an expense ratio of 0.95%.
VelocityShares 3X Long Crude Oil $UWTI— For the more adventurous, yet still disciplined trader, this 3X leverage bullish oil ETN will rack up gains fast. The expense ratio is a bit higher at 1.35%.
Bearish- These inverse products trade opposite the price of crude. In other words, when crude falls, the ETNs below will rise.
ProShares UltraShort DJ-UBS Crude Oil $SCO— Instead of trying to short $UCO when you feel oil prices are ready to decline, you can simply get long this 2X leverage ETN. This product has good liquidity and an expense ratio of 0.95%.
PowerShares DB Crude Oil 2X Short $DTO— Not as much liquidity as $SCO, but still tradable for anyone bearish on crude. The best part is, the expense ratio for this product is slightly lower at 0.75%.
VelocityShares 3X Inverse Crude $DWTI— Not for the faint of heart. This 3X leverage inverse ETN will skyrocket when the price of crude starts falling. The expense ratio is still a respectable 1.35%.
Leveraged ETN List: Natural Gas
Bullish- When the price of natural gas rises, these products below will rally along with it.
ProShares Ultra DJ-UBS Natural Gas $BOIL— An alternative for anyone looking to get 2X leverage in a long natural gas position. However, liquidity is a bit lacking in $BOIL, so you’ll have to choose your entries and exits carefully.
VelocityShares 3X Long Natural Gas $UGAZ— A much better alternative to $BOIL due to its ample liquidity. But remember, with 3X leverage, things will happen quickly in $UGAZ. What’s more, this product has an expense ratio of 1.65%.
Bearish- The inverse products below trade opposite the price of natural gas. In other words, when gas falls, the ETNs below will rise.
ProShares UltraShort DJ-UBS Natural Gas $KOLD— Much like its 2X leverage long counterpart above ($BOIL), $KOLD suffers from low liquidity. As a result, you’ll need to trade this inverse 2X short ETN very carefully.
VelocityShares 3X Inverse Natural Gas $DGAZ— Here’s the best alternative for anyone looking for outsized gains from a natural gas price downturn. The 3X leverage inverse ETN will rally quickly when gas prices weaken. However, the expense ratio is a rather portly 1.65%.
There you have it…
As you can see, the list is short and sweet when it comes to energy-focused leveraged ETNs. However, there’s still ample opportunity to rack up large gains if you use the above products correctly.
Just keep in mind, leveraged ETNs are highly volatile and are best left to experienced short-term traders!
Until Next Time,
***Editor’s Note*** Remember, there’s a big difference between ETFs and ETNs. Read this article to see what they are.
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.
Category: Commodity ETFs