Although Potentially Lucrative, Oil ETFs Carry Extreme Risk

Posted on April 9th, 2019 at 4:00 PM
Although Potentially Lucrative, Oil ETFs Carry Extreme Risk

From the Desk of Jim Eccleston at Eccleston Law LLC:

So far this year, leveraged oil funds have been among the top-performing exchange-traded funds (ETFs) of 2019. Some examples of the most lucrative ETFs include the Velocity-Shares 3X Long Crude Oil exchange-traded note, which is up 89% this year and the United States 3X Oil Fund, which is up 88%.  

However, investors should be aware that Oil ETFs are volatile because losses are amplified when the market reverses. Furthermore, these funds require the average investor to correctly predict when oil prices will rise. In addition, even when oil prices actually rise, the average investor is required to take into account that he or she must rebalance daily, which could end up eroding any actual return. Notably, last year, while oil prices were down only 7%,  triple-leveraged products lost almost 40%.

The risks involved with oil ETFs are why firms like Charles Schwab Corp. and Vanguard Group impose guardrails on investors trying to buy leveraged products. In addition, both FINRA and the SEC have warned brokers that leveraged ETFs are potentially unsuitable and should not be recommended to long-term investors.

The attorneys of Eccleston Law LLC represent investors and advisors nationwide in securities and employment matters. The securities lawyers at Eccleston Law also practice a variety of other areas of practice for financial investors and advisors including Securities FraudCompliance ProtectionBreach of Fiduciary DutyFINRA Matters, and much more. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

Tags: james eccleston, eccleston law, eccleston law llc, eccleston, etf, oil fund, long crude oil, united states oil production

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