Proshares Ultrapro Short QQQ ETF: Analysis, How to Invest

Learn about Proshares Ultrapro Short QQQ ETF. Proshares Ultrapro Short QQQ (SQQ) is a reverse leveraged ETF that replicates the performance of the Nasdaq 100, the index that includes the most important 100 stocks listed on the Nasdaq stock market, both U.S. and international, with the exclusion of those of a financial nature. In the index, company holdings are prioritized based on market capitalization and we can find all the high tech and telecommunications giants. Below we will see how a reverse leveraged ETF works, how to invest and what risks it involves. 

Proshares Ultrapro Short QQQ ETF: What it is and How it Works

SQQ is an inverse ETF: it is an exchange traded fund built using various derivatives (mainly futures) to profit from a drop in the value of an underlying benchmark. Investing in inverse ETFs is similar to operating with short positions that involve borrowing securities and selling them, with the aim of buying them back at a cheaper price.

These products allow investors to make money when the underlying market or index goes down, but without having to sell anything short. This means that you won’t even need a margin account, which is usually necessary for anyone who wants to take short positions. 

An unleveraged inverse ETF has a 1:1 return, while in the case of Proshares Ultrapro Short QQQ, we have 3x leverage, which means a 3:1 return. Let’s take an example: the Nasdaq 100 index loses 2% on the trading day. The ETF will then earn 2%, multiplied by 3, or 6%. Such an instrument is not suitable for long-term investments, but is applied to intraday positions. 

Composition of Proshares Ultrapro Short QQQ

As we mentioned the underlying benchmark of the SQQ is the Nasdaq 100. In this index we find the shares of Apple, Microsoft, Facebook (Meta), Alphabet (Google), Nvidia and many others from the high tech, biotechnology, telecommunications and services sectors. There are no banks, financial and insurance companies that we can instead find in the Nasdaq Composite, for example.

So in principle we are talking about very solid companies, whose losses are not so predictable. That is why the inverse ETF in this case, becomes an investment that involves a certain risk, especially for the presence of the 3x leverage: if you bet on a loss and the index instead rises, the losses will be tripled.

Quotation and Technical Analysis

After the new all-time high, starting in the second half of November 2021, the Nasdaq 100 index has had a gradual decline, from which SQQ has benefited, and is in a correction phase at -10%. The question is whether there will be further declines or whether investors will start buying again. Indeed, technology stocks had a strong phase at the beginning of the year, with in addition the pending decisions of the FED on interest rates. We are therefore going through a stabilization phase and analysts have a wait-and-see position on this. 

How to Invest in ETFs

If you are interested in investing in ETFs, the most practical way is to do so by signing up with an online trading platform. ETFs in general tend to have low commissions and banks do not have much interest in offering them. One such platform is eToro, Europe’s leading online broker, certified by Consob and offering the possibility of free registration and very low commissions, when not completely zero. The site also allows you to open a demo account, without deposit, for those who want to do some practice with virtual money ($100,000), designed especially for newbies. 

How to Exploit an Inverse ETF: Frequent Strategies

Investing in ETFs of this type can be a way to preserve your portfolio when the market is down. If you own a classic Nasdaq 100 Index ETF, such as iShares Nasdaq 100 UCITS ETF (Acc), to name one, it totally replicates the index’s performance, both up and down, and consequently if its performance is negative, you will have a loss. This is where the inverse ETF can step in and compensate for what would be lost, moreover earning more thanks to the leverage effect.

Costs and Risks of Investment: Is it worth it?

Proshares Ultrapro Short QQQ compared to standard ETFs has a rather high expense ratio of 0.95%. These costs are not surprising since the fund’s strategy is to liquefy derivative contracts before they reach the optimal target.

As anticipated, the inverse instrument is more useful if you also invest in an ETF that normally follows the index, because in case of incorrect forecasts the losses can be really big. It is not a product suitable for everyone, because the investor must operate very quickly or have a broker who will

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