A leveraged ETF tracks N times the underlying index's return every single day. Because of compounding, its long-run return diverges from a simple multiple of the index's return.
The loss is especially severe in a choppy, sideways market.
| Item | Return | Final value | Vs. base |
|---|---|---|---|
| Underlying index (1×) | Baseline | ||
| Decay loss (vs. expected) |
Why a Leveraged ETF Is Risky to Hold Long Term
A 3x leveraged ETF tracks 3 times the underlying index's "single-day" return. Because of this daily-reset structure, a choppy, sideways market — where the index ends up flat — can still slowly erode the ETF's value through volatility decay. This simulator shows numerically how much decay eats into your return, given a volatility level and holding period.
For real TQQQ/SOXL cases and the underlying math, see why holding a leveraged ETF long term is risky; for how a downside-betting product is structured, see the complete guide to inverse ETFs.
Worked Example
Example (an illustrative scenario — not the actual return of any real stock): with 2x leverage, a 10,000,000-won initial investment, 1.5% daily volatility, a +4% trend, and a 252-trading-day (roughly one-year) holding period, the underlying asset (1x) ends at −10.1%. The naively expected return (underlying total return × 2) would be −20.3%, but the actual daily-reset leveraged product comes out to −23.1%. That 2.9-percentage-point gap (about 286,207 won) is the volatility decay this simulator measures. This case shows as "low" risk because the decay is under 8 percentage points ("medium" is 8pp+, "high" is over 20pp).
What's Included and Excluded
Included: a real-data mode that compounds an actual ticker's historical daily returns day by day, and a scenario mode
(used in the example above) where you set the daily volatility, trend, and holding period to generate a synthetic price
path. Both modes compare the naive multiplied return against the actual daily-compounded return to quantify the decay.
Excluded: management fees, trading commissions, and taxes; a real leveraged ETF's own tracking error (which varies by
product); delisting or liquidity risk; multiples other than 2x/3x; and reproducibility guarantees outside the
252-trading-day range shown here.
Reading the Result
"Expected return" is simply the underlying's total return multiplied by the leverage factor; "actual return" is what you'd get by compounding daily gains and losses. A wider gap between the two indicates higher volatility along the way, not necessarily a larger loss — a strong, steady trend in one direction produces less decay, while frequent up-and-down swings (a sideways market) increase decay regardless of direction. The "risk level" (low/medium/high) is only a relative bucket based on the size of the decay gap; it does not guarantee any specific dollar loss or capital preservation.
Out-of-Range Inputs
In real-data mode, if fewer than 10 trading days of data are found, you'll see "Could not load data for '{ticker}'. Please check the ticker." In scenario mode, values outside daily volatility 0–20%, trend −5% to +5%, or a holding period of 20–756 trading days will be rejected. Leverage can only be set to 2x or 3x, and the initial investment must be greater than zero.
Assumptions and Limits
Scenario mode applies a random daily path built from your chosen volatility and trend, which can look quite different from a real market's sharp rallies and crashes; this tool's example generation uses a fixed seed, so the same inputs reproduce the same path here, which is not how real markets behave. Real-data mode uses historical prices, so its results can change depending on when you run it. This calculator does not recommend buying or selling any specific product; its results are a reference for understanding the concept of volatility decay.