Margin for Leveraged ETFs going up on Dec. 1

I think a major problem is that a large percentage of people that use 3X ETFs or the 2X ETFs don't even know what they're getting themselves into and have no clue how the products work. They end up holding these products for the long term when they're really meant to be short-term trading products, and they get screwed royally in the end (no pun intended).

The rule however may screw people that know how to use the products... :(
 
Quote from l2tradr:

I think a major problem is that a large percentage of people that use 3X ETFs or the 2X ETFs don't even know what they're getting themselves into and have no clue how the products work. They end up holding these products for the long term when they're really meant to be short-term trading products, and they get screwed royally in the end (no pun intended).

The rule however may screw people that know how to use the products... :(
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it is called obamism. the gov't knows what is good for you better than u know.
 
Quote from zdreg:

it is called obamism. the gov't knows what is good for you better than u know.
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Agreed. Regulations should have been in place when bus drivers with 30K/yr income were taking out mortgages for $500K. This is small potatoes.
 
The regulators can do whatever they want. They didn't have to approve these products in the first place. Now they look like idiots if they revoke the approvals, so they try to strangle them on margin.

My real beef is with loudmouth Cramer and RM. They orchestrated a campaign against these products. They try to appeal to active traders then turn around and stab us in the back. Why, I can only imagine. I really don't think buy and holders and mutual fund investors are shelling out for RM. Maybe Cramer was worried these products would cut into the Lenny Dysktra-premium product model they use.

Cramer has been totally silent regarding a far vaster threat to all traders, the transaction tax. Of course, the reason is the socialist politicans he supports are pushing it. Cramer was taught a painful lesson earlier this year about the costs of appearing to criticize anything they do when he was administered a public beatdown and ritual humiliation by Jon Stewart. He hasn't been the same since.
 
Sorry but the rules make sense. In a stock account, leverage is limited to 2:1 overnight, 4:1 intraday. That applies to ETF's, it only makes sense that regulators require 100% margin for those ETF's , otherwise you have a situation such as zdreg likes to exploit where you can have 12:1 leverage :eek: . I understand , these products allow you to trade sectors and eminis don't , but considering the volatility of these sectors, I question why you would want 12 times leverage. Nobody needs that kind of leverage to do well , unless they get it right on every trade.
For hedging purposes however there certainly are advantages to the low margin , a small amount of money allowing to hedge your entire portfolio. So in that regard it's a shame they raise margins, but it's not surprising.
 
Quote from Kicking:

Sorry but the rules make sense. In a stock account, leverage is limited to 2:1 overnight, 4:1 intraday. That applies to ETF's, it only makes sense that regulators require 100% margin for those ETF's , otherwise you have a situation such as zdreg likes to exploit where you can have 12:1 leverage :eek: . I understand , these products allow you to trade sectors and eminis don't , but considering the volatility of these sectors, I question why you would want 12 times leverage. Nobody needs that kind of leverage to do well , unless they get it right on every trade.
For hedging purposes however there certainly are advantages to the low margin , a small amount of money allowing to hedge your entire portfolio. So in that regard it's a shame they raise margins, but it's not surprising.
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I think the answer is that stock margining rules have traditionally not considered volatility, except to make exceptions for very low-priced shares. Why should VZ have the same margin as C? They have vastly different volatilities.

Some of these broader-based index ETFs are far less volatile than ordinary stocks. Doubling or tripling the leverage does not put them in some super dangerous category.

What we have here is clueless regulators responding to pressure. Pressure that was at least partly generated by loudmouth Cramer and the morons on his site.
 
So, as I undertand it, that means the "ultra" power in the ETFs is lost. If trading FAS requires 3 times of its current margin, for the same account size its effect would be basically the same as trading non-ultra ETFs using the full margin allowed 4:1 for the day. If you have a $25k account, you can currently have the buying power of 1428 shares of FAS (assuming $70 a piece), on Dec 1 you can only buy 476 shares. Big difference.

I think this will be a significant setback for the ETF industry. It literally kills the most high risk/reward trading category in the stock market. The politicians think they know better and should determine our risk tolerance level, as we traders are such idiots that we don't know what we are doing.
 
The SEC (the government) did not make this change.
FINRA (the industry's self regulator) made the change. This indicates that the industry is trying to rein in its own perceived excesses in the current hostile political environment. The fact that the industry is willing to destroy the most popular trading instruments on the exchanges just shows just how hostile they must perceive the current political environment.
 
This is a good thing. There are too many people investing in these things that have absolutley no clue what they are buying/selling.

Should be 100% cash IMO. If you want a line of credit go to a prop firm.
 
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