Trading leveraged ETFs

Hi, I just joined and this is my first post .

I recently started trading just a couple weeks ago, and on Tuesday I tried out trading SDS which is the SPY double short. However my broker (thinkorswim) took away extra buying power so that I ended up gaining no leverage at all compared to shorting the SPY directly. When I inquired about it, their explanation was that since, as a day trader, I am receiving 4 to 1 margin benefit, they will not allow any additional leverage created by these funds.

Is this fair and/or the standard policy of online brokers? I can see their point but at the same time if they all take this stance, then there seems to be no reason for these ETFs to even exist.

 

This is a new policy mandated by FINRA. Your BP is reduced by the amount of the leverage. It's a stupid policy, because these index ETFs are typically far less volatile than individual stocks. You can thank Jim Cramer and the collection of idiots at his website for it, since they have criticized these leveraged ETFs incessantly and blamed them for everything but the gulf oil leak.

 

Thanks. Very disappointing that they made this rule. As it is now I have to invest the entire cash value of my account into the major index ETFs to get the risk parameters that I'm looking for, so I have nothing left to make any separate trades of individual stocks.

 

If you really want leverage, be willing to trade the eMini.

 

Fixed that for you...

 

I trade TNA/TZA , BGU/SPXU ,DRN/DRV ,FAS/FAZ ,ERX/ERY etc.
So almost full money have to be paid and no buying power.
So curbed my tendency to stagger in buy/sell 3XETf & day traded normal stocks below $50 with high intraday volatality. MEE,ANR,WFt,TSO etc

 

I'm a bit confused. Will people with cash accounts be affected in this same way?

 

In a cash account you cannot day trade anyway. You need a margin account for that. For leveraged ETFs though, you get almost no leverage. You regularly get 4 to 1, that is 25% margin. For double ETFs the margin is 60%, and for triple ETFs is 90% (almost like cash).

 

I think what he's asking is, will levered-ETFs enable you to lever a cash account, and the answer is yes.

 

I thought leveraging an account means using borrowed money, in addition to your cash, to trade. There is no leverage in a cash account.