Gate.io has introduced ETF leveraged tokens. The only difference between leveraged tokens and traditional tokens is that leveraged tokens have leveraged properties. All leveraged tokens have counterparts on the spot trading market.
ETF products are hedged and managed on perpetual contracts.A daily management fee of 0.1% is charged. (The management fee rate varies with the actual cost. Please refer to Announcements for the latest information). Management fees make up for costs such as contract handling fees and funding fees, while contract funding fees are not charged. Through capital management optimization, users’ actual leverage expenses and risks are reduced.
Users do not need to pledge collateral when trading leveraged tokens, but ETFs will incur daily management fees of 0.1% (management fees are collected from management funds and are not directly reflected in the user's trades). Leveraged tokens essentially correspond to perpetual contracts, which can also be conveniently understood as spot trading. Compared with directly participating in perpetual contract trading, leveraged tokens strive to optimize capital management to reduce users' actual leverage expenses and risks. Leveraged tokens are still categorized as high-risk products. Please make sure you understand the risks before trading leveraged tokens.
ETF leveraged tokens:
3L: 3-time leveraged long bullish token Example: ETH3L is the 3-time leveraged long bullish ETH token. 3S: 3-time leveraged short bearish token Example: ETH3S is the 3-time leveraged short bearish ETH token.
Position adjustment mechanism of leveraged tokens
When ETF products follow up the profit and loss and adjust the leverage back to the targeted leverage every day, if profits are made, positions will be opened; if there are losses, positions will be reduced. No collateral is needed for leveraged token trading. Through simple buying and selling of leveraged tokens, users can generate leveraged gains, just as in margin trading.
Rules for 3X leveraged ETF:
1.Irregular rebalancing: When the real-time leverage ratio exceeds 3, irregular rebalancing will be triggered and the position adjustment mechanism will adjust the leverage ratio to 2.3.
2.Regular rebalancing: 00:00UTC+8 every day is the regular rebalancing time. When the real-time leverage ratio goes below 1.8 or above 3, or the fluctuation rate (calculated with contract index price) exceeds 1% (because of a significant increase or decrease in the underlying currency's price in the last 24 hours), the position adjustment mechanism will adjust the leverage ratio to 2.3.
3.The 3-time leveraged ETF has the targeted leverage of 2.3 times in practice, in an effort to lower the market fluctuation rate and minimize long-term friction costs. On a one-sided market, because the profits made will be used to add more positions and stop-loss will be triggered when losses are incurred, ETF products would appear to perform well, but friction costs can be severe due to market fluctuations. Therefore, ETF products are good for short-term hedging instead of long-term holding.
Rules for 5X leveraged ETF:
1.Irregular rebalancing: When the real-time leverage ratio exceeds 7, irregular rebalancing will be triggered and the position adjustment mechanism will adjust the leverage ratio to 5.
2.Regular rebalancing: 00:00UTC+8 every day is the regular rebalancing time. When the real-time leverage ratio goes below 3.5 or above 7, or the fluctuation rate (calculated with contract index price) exceeds 1% (because of a significant increase or decrease in the underlying currency's price in the last 24 hours), the position adjustment mechanism will adjust the leverage ratio to 5.
3.The net asset value of 5-time leveraged ETF products is extra vulnerable to the price changes of the underlying currency. Logically, irregular and regular rebalancing happens more frequently for 5-time leveraged ETF products, which also suffer more from friction than 3-time leveraged ETF products and are only good for short-term hedging. Before investing in ETF leveraged products, please be informed of the differences between 5X and 3X leveraged tokens and choose wisely.
Advantages of leveraged tokens
Free from liquidation
Leveraged tokens are essentially token pairs on the spot market and are therefore free from liquidation. Even if the price of a leveraged token falls from 100USD to 1 USD, the quantity that the trader holds will not change. If considerable losses have been incurred, it may trigger the automatic position reduction mechanism. Only in rare cases, the price of leveraged tokens may approach 0.
No collateral needed
In conventional margin trading, collateral is a must for traders to generate leveraged gains, which can be achieved by trading leveraged tokens without collateral. A certain management fee will be charged.
Deposit and withdrawal of ETF leveraged tokens are not possible yet.
Automatic profit compound and automatic position reduction When there is a one-sided rise on the market, 3X leveraged tokens can generate more profits than conventional margin trading with 3X leverage. The reason for this is that the profits made are automatically used to purchase more leveraged tokens to generate more profits. When the market falls, liquidation will not happen and automatic position reduction will be triggered instead to stop loss.
Disadvantages of leveraged tokens
Leveraged tokens are new products with leveraged properties, which come with considerable risks.
Not a good fit for long-term investment
Leveraged tokens are only fit for professional investors to use for risk hedging or short-term one-sided market investment. They are not fit for medium and long-term investments. Because of the existence of the position adjustment mechanism, the risk of holding leveraged tokens for a long time is extremely high. The longer the holding time, the greater the volatility and friction costs.
Fund Management fee
The funding fees of perpetual contracts are paid between traders on opposite sides of the contract, but when trading leveraged tokens a fixed daily rate of management fee will be charged: a daily management fee of 0.1% is charged.
All content above is not any advice for investment. Leveraged tokens are high-risk products. Please make sure you have a good understanding of the risks before trading leveraged tokens.
Please be w*arned:
The cryptocurrency market is volatile. 3X and 5X leveraged ETF products will increase price volatility and bring greater risks of loss. Please be sure to understand the risks in detail and trade wisely. Because of regular and irregular position adjustments, the rise and fall over a certain period of time is not always the targetted leverage. ETF products are hedged through perpetual contracts. If profits are made, positions will be opened; if there are losses, positions will be reduced. ETF products follow up the profit and loss and adjust the leverage back to the targeted leverage on a daily basis. Friction costs can be quite considerable in a fluctuating market. Due to the position adjustment mechanism and position holding costs, leveraged ETF products are not a good long-term investment. Large prices fluctuations and high risks are characteristics of ETF products. Please invest carefully.