In July, AXS Investments debuted US-based investors' first single stock Exchange Traded Funds. These ETFs allow investors to gain leverage on certain individual stocks.
However, because you are using leverage, there is more risk involved, and the authorities want investors to understand these risks before purchasing these new products.
The risks are associated with the leveraged exposure these new ETFs offer and the risk associated with investing in individual stocks. But since leverage is being applied, the risk level multiplies.
For example, one of the new ETFs being offered is the AXS 2X NKE Bull Daily ETF (NKEL) which provides investors 2X leverage to Nike (NKE) stock. This would mean that if you owned NKEL on a day when Nike stock increased by 0.50%, the NKEL ETF, which is 2X leverage, will go up 1.00%.
But, the opposite is also true. So if Nike stock fell by 1%, the NKEL ETF, which tracks Nike stock at a 2X leveraged ratio, would lose 2%.
Leverage is a very nice thing to have when it is being applied in the direction you want it to move. But leverage can be deadly when it is going against you.
Hence why the Securities and Exchange Commission is warning investors of the dangers associated with any single stock ETF, even if it is not marketing itself as leveraged.
One example of a new single stock ETF that is not marketing itself as leveraged is the AXS TSLA Bear Daily ETF (TSLQ). This ETF only tracks Tesla, but to the downside with just 1X leveraged exposure.
This essentially means that the TSLQ is shorting Tesla. But, unlike having to short a stock, which would require approval from your broker, a margin account, and the risk of not losing more than 100% of your investment, you simply have to buy this one ETF and not worry about the other things. Continue reading "Single Stock ETFs Are Here"