Shabba

Understanding Triple Leveraged ETFs

Thanks for the answer. Good article too! It was very informative.

Understanding Triple Leveraged ETFs

I'm new to ETFs and haven't invested in one before. I have a very basic question though, what keeps these things balanced?

For example suppose the underlying basket of stocks increases by 5% that the ETF represents in one day, is there some type of mechanism to ensure the ETF goes up 5% (assuming it isn't one of the levered ETFs)?

It doesn't seem like there is anything to force this, and you can't redeem your shares directly from the ETF for the individual stocks so there isn't an arbitrage opportunity. It seems like ETFs are promoted as representing a basket of stocks when in reality their performance is different because you have essentially created a new security by combining everything and not forcing the ETF to actually represent the underlying stocks. Or am I wrong about this?