Question 1

What is leveraged ETF decay?

Accepted Answer

Leveraged ETF decay (also called volatility decay or beta slippage) is the tendency of a 2x or 3x ETF to drift away from a simple multiple of the index's total return over time. Because the fund targets a daily multiple and resets each day, alternating gains and losses compound from a changing base, which can erode value — especially in choppy, sideways markets.

Question 2

Why is my leveraged ETF down when the index is flat?

Accepted Answer

Daily reset and compounding. If the benchmark goes up and down but ends near where it started, a leveraged ETF can still lose value because each day's return is applied to the fund's new value. The bigger the daily swings and the higher the leverage, the more pronounced this decay can be.

Question 3

How is daily expense drag calculated?

Accepted Answer

This calculator applies the annual expense ratio as a daily drag of expense ratio divided by 252 trading days. So a 0.95% annual expense ratio reduces the fund's daily return by roughly 0.00377% each day, on top of the leverage effect.

Question 4

Does decay mean leveraged ETFs always lose money?

Accepted Answer

No. In a smooth, strongly trending market, daily compounding can actually push a leveraged ETF above a simple multiple of the index. Decay tends to hurt in volatile or range-bound markets and help in steady trends. Results are entirely path-dependent — this tool lets you test different paths.

Question 5

Is this calculator using real fund data?

Accepted Answer

No. It uses hypothetical return paths you choose or enter, not live market data or any specific fund's history. It is an educational model of how daily-reset math behaves, not a forecast or a description of any real product.

Leveraged ETF Decay Calculator

Decay Simulator

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