A leveraged ETF is designed to provide a magnified return on a benchmark index, usually two or three times the index’s daily performance. For example, a 2X S&P 500 index ETF should rise 4 percent on a day when the index rises 2 percent, while a 3X fund should rise 6 percent. Even the best leveraged ETFs are a high-risk play, though they have a potentially high return.
An inverse ETF is designed to provide the opposite return of a benchmark index. For example, an inverse S&P 500 index ETF should rise 3 percent when the index falls 3 percent. Similarly, if the index rises, the inverse ETF should fall.
Because of the way they achieve these kinds of performances, leveraged and inverse ETFs are more risky than their normal ETF counterparts.