FTSE 100 Short EFT

Ciprico

I am more curious than seriously considering using these, what is the benefit of a tracker that tracks the downside of the footsie...

I suppose there is a way to make money out of this in a dropping market - but how ? Would this beat selling out of dropping FTSE and holding cash during the drop (assuming you had perfect hindsight!)

I am only curious because this was one of the most popular UK EFTs last year. Am I missing something..?

I am referring to this, I'm not allowed to post a link

BOOST ISSUER PLC FTSE 100 ULTRA SHORT STRATEGY 3X DAILY (3UKS)

Thanks in advance for any enlightenment !

Linton

It is very dangerous to use over an extended period because it is reset daily.


Consider the following sequences:
The FTSE moves: 1000,1100,1000 ie up 10% and down 9.1% approx
Your money moves £1000, £1300, £945


The FTSE moves 1000,900,1000 ie down 10%, up 11.1% approx
Your money moves £1000,£700,£933

planteria

if someone was backing the FTSE, and then correctly predicted that it would fall, they could move from being long to being short, benefit from the fall, and then have even more money to buy back in than they would have had by just sitting on their cash. that's the point of shorting.
whether it is something any of us should be considering trying to do is another matter though:D.

fun4everyone

It always sounds clever to short but usually it isn't.

Obviously someone with insider knowledge might know when a fall is coming due to having non public information, but trading on that is breaking laws.

Efficient market theory is only 99% true and it is possible to find companies and situations where the share price does not reflect reality (using public, not insider knowledge) but you have to be pretty determined, smart, and well researched to correctly judge this.

Reaper

Linton wrote: »

The FTSE moves 1000,900,1000 ie down 10%, up 11.1% approx
Your money moves £1000,£700,£933

I don't follow. Being a shorting fund if the FTSE drops (1000 to 900) then surely your money doesn't fall from £1000 to £700. It should go up. Vice versa for the other example.

fun4everyone

Similarly to the uneducated newbie it can sound smart when they read a webpage warning of crashes/pull backs in the stock markets and suggesting they should hold off investing until prices are cheaper/a fall occurs.

Saying just put all your money in now regardless of the current price of stocks and ignore what happens for 20 years sounds dumb, but it's actually the smartest thing to do for the majority of people.

Linton

Reaper wrote: »

I don't follow. Being a shorting fund if the FTSE drops (1000 to 900) then surely your money doesn't fall from £1000 to £700. It should go up. Vice versa for the other example.

Oops!


Corrected.....
The FTSE moves: 1000,1100,1000 ie up 10% and down 9.1% approx
Your money moves £1000, £700, £891


The FTSE moves 1000,900,1000 ie down 10%, up 11.1% approx
Your money moves £1000,£1300,£867


So its even worse than I said first time around.

dividendhero

Go into a dark room and repeat "don't touch things like short ETF's unless you absolutely know 100% what you're doing" 1000 times