Thanks Clive for this Introductory Course on Leveraged Funds.
Until now I have structurally avoided delving into the discussions that were focusing on that. . . Other than having studied 1) margin investing in which a broker provides extra money the investor does not have (never done it-using the 10 ft pole principle), 2) leverage provided by Forex Brokers(only played with it), 3) the leverage that applies when using my own Vortex TurboVest Method(works great and have made money with it), and 4) put and call options and even writing them(getting the money up front-have done all these too) and I spend enough time to get to understand their "mechanics". Leveraged Funds as discussed on this Forum have managed to make themselves appear uninteresting. . .the unfamiliar verbiage used in the discussions usually hung over the underplaying mechanics as an opaque cloud . . .usually the discussions focused on market conditions. . . bulls and bears. . . and what not other investment mumbo-jumbo on top of that. . .I did not got interested to bother with it. . . I had enough on my head to "fiddle" with the "nuts and bolts" of Vortex Excel and Vortex Windows.
In response to your post and charts I thought maybe I should Google a bit on the subject, so I would not feel like an idiot reading your post. The first thing I encountered was a load of verbiage that seemed to avoid the issue. . .it was like they were selling a "sizzle" and I was not sure if there was a "steak" on the grill or a piece of "baloney", but after a few minutes I started to catch on a bit, after I blew away the opaque cloud covering up the mechanics of the method I was looking for: All the talk about how the leverage was achieved were non-issues to me. . . it appeared to be as simple as this: I have two funds A and B that have both $ 10 as the midpoint between the trading range limits at a certain starting point:
A1 goes like this: 10,12,14,16,20,18,17,13,11,10,12,15 17 . . .etc.
B1 goes like this: 10,14,18,22,30,26,24,16,12,10,14,20 24 . . .etc.
Here the leverage =2x on the price change.
This fits the definition if no other example is provided.
Another interpretation is to have a leverage of 2 on the "price" itself:
A2 goes like this: 10,12,14,16,20,18,17,13,11,10,12,15,8 . . .etc.
B2 goes like this: 20,24,28,32,40,36,34,26,22,20,24,30,16 . . .etc.
This is a different cattle of fish. Which one is the correct interpretation? It seems obvious that for B2 a lot more Cash Reserve is needed relative to A2.
Is this interpretation correct?
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