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Regarding ETF Re-balancing Rules Upgrade

2020-10-30 20:28:11Read:17656

The leveraged ETF product re-balances to target leverage every day following the profit and loss. Profit will be used to expand position while the loss will lead to decrease the position. When trading with ETFs, you do not have to pay a margin, you can simply buy and sell it to enjoy increased exposure like you are trading with leverage. ETF products are managed and hedged in the perpetual contract market. We charge management fees daily to compensate for the funding payment and trading fee which is incurred at perpetual contract markets. No extra funding fee is charged. By optimizing the fund management, the cost and risks for you to get leveraged exposure are significantly reduced.

ETF production has been popular among users for its simplicity in trading. However, the product incurs greater friction at a swinging market and over a longer time as it rebalances following the predefined rules to avoid liquidation. To reduce the frictions over a long term, and increase the stability of its net asset value, we will upgrade the ETFs on November 1st, 21:00 UTC+8. The upgrade is expected to compete in 1 hour; during the process of upgrading, ETF trading will continue, but the net asset value display will stop. Please beware of the possible net asset value changes during the process and adjust your orders accordingly. After the upgrade, the new rules will take effect the next day. Below are the new rules.

1)Irregular re-balancing: When the real-time leverage is over 3 times, irregular re-balancing will be triggered. The leverage will be adjusted to 2.3 times.
2)Regular re-balancing: Everyday at 0:00 UTC+8, when the real-time leverage is less than 1.8 times or above 3 times; or the underlying asset price changes drastically (e.g. up or down over 1 % on contract index price), regular re-balancing will be triggered to adjust the leverage to 2.3 times.
3)After the upgrade, ETF’s market volatility will decrease and frictions over a longer time will be reduced; but it is far from completely avoiding the long-time frictions. The ETF performs better in a one-sided market as it will use profit to increase position and decrease position when there is a loss, but it is not suitable for long term holding and performs bad in a swinging market.


Digital currency prices are susceptible to high volatility, which is even more tangible for 3X leveraged ETF products. Therefore there is a risk to suffer amplified loss. Please fully understand the product and risks involved before trading.

Gate.io Team
October 31, 2020
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