Leveraged ETF decay calculator: why the 3x fund ends down
The index swung up and down and ended right where it started. The 3x fund didn't. Put in the swings and see how much the daily reset ate.
| Day | Index move | Index so far | Fund so far |
|---|
How it works: a leveraged fund resets every day. Each day it moves leverage × the index's move for that day. So a 3x fund on a +2% day gains 6%, and on a −2% day it loses 6%. The fund's total is all those daily moves multiplied together, not 3 × the index's total. The gap between the two is the decay, also called volatility drag. In "swing" mode the index goes up by your % one day, then falls back to exactly where it started the next day. Fees and the fund's own trading costs are left out, so a real fund trails a bit more.
Why the index can end flat and the fund ends down
Take a 10% gain, then a 10% loss. You don't get back to the start. 100 becomes 110, then 99. The bigger the swings, the worse this gets. A 3x fund turns every swing into a swing three times as big. So it loses more on the way back than it made on the way up. Choppy markets with no clear direction are where these funds bleed the most. In a steady trend the same math can work the other way, and the fund can beat 3 × the index. Try a list of all-up days to see it. For the basics, see what a leveraged ETF is and how leverage works.
Why losses hurt more than gains help
After a 50% drop you need a 100% gain just to get back. A 3x fund reaches big drops much faster than the index does, so it spends more time digging out of holes. That's why these funds are built for one day at a time, not for years. The funds say so in their own papers. If you want leverage for a longer trade, compare the choices in options vs leveraged ETFs, and see how big a hole is with the loss recovery calculator.
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