Making Financial Headlines · Page 9
Leveraged Dip Buyers Discover the Index Has More Than One Direction
· New York time
Traders who rushed into a leveraged fund to make a bullish bet on the Nasdaq-100 were hurt as technology shares continued to fall. The fund amplifies daily index movements, making a wrong-way move more consequential than an unleveraged bet on the same daily change. Daily leverage also makes the time frame important: returns over multiple days can differ from a simple multiple of the index's cumulative move. Volatility can make that distinction particularly noticeable. Buying a decline relies on a hoped-for recovery, not an agreement that the decline is finished. Here, some traders paid extra for speed just as the market kept moving the other way. The dip did not read their timetable before arranging its next appearance.
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