Where to get 50x leverage on stock indices

By Felix Salmon
November 20, 2009
100x levered ETFs, with the ticker symbols SOAR and SINK:

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Last Friday, Jason Kelly put up a very funny blog entry about his launch of a pair of fictional 100x levered ETFs, with the ticker symbols SOAR and SINK:

Kelly Capital will reset and relaunch the funds at the beginning of each trading day. The company is in talks with the Security and Exchange Commission (SEC) about the possibility of relaunching the funds after lunch should they go bust in the morning session, but the SEC is balking. SEC spokesperson Ben Meriwether remarked, “We recognize the right of investors to employ as much leverage needed to find fortune or ruin in a day, we just aren’t sure of the need to extend that right twice per day.”

By Wednesday, Kelly was depressed enough about the email traffic he got in response that he posted an update:

A full 65% of people expressed an interest in owning products that would “go bankrupt within the course of most trading days.” A stunning 5% thought they already owned them. Only 30% of respondents got the humor.

John Carney picked up the datapoint in a blog entry headlined “Is It Possible To Invent An Investment Product Too Stupid To Find Buyers?” — something I then tweeted.

What none of us appreciated, however, is that products much like these already exist. As Amy Nauiokas Sean Park rightly notes, in the spread betting market, which is huge in the UK and elsewhere, 50-1 leverage is common. IG Index, for instance, gives an example of how a £10-a-point bet on the FTSE can generate a gain of £560 — or a loss of £480 — in one day.

Spread bets don’t exist in ETF form, but they’re essentially the same thing, just much more highly leveraged than any fund. They’re hugely popular in the UK — which just goes to prove that yes, if you offer an insanely leveraged way of betting on intraday moves in stock indices, there’s no shortage of people who will flock to your door. Even in boring old England.

Comments
5 comments so far

Are these different from futures?

Yes, but evidently Felix doesn’t think futures count.Me, I would point out that every US retail investor can already open a commodities account. In same he can buy an S&P 500 future at roughly 25x maintenance margin. Then there are synthetic futures, but for that you do need a broker willing to let you short naked.

just fyi, tweet was me, unfortunately I have as of yet been unable to convince Amy of Twitter’s utility, maybe you can help me on that front! ;)

That kind of leverage has been around for ages. With a $1500 day margin on the CME ES contract (S&P 500 index) you got yourself 36.6 leverage.

Posted by Charlie | Report as abusive

Eh, how is that example of spread-betting telling you what the leverage is? That depends on how much margin you’re required to put up, and is probably more like 10-20x.

Posted by nivedita | Report as abusive
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