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Understanding the Risks of 3x Leverage Investing: Volatility Decay

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Created: 2024-04-21

Created: 2024-04-21 09:33

Hello? The program that had been stopped since October 6, 2022, started working again yesterday. 👏👏👏

It was a long time, so I'm grateful, but considering that it could stop again, I can just let it go. Anyway, it's working again, and I made a small profit. While slightly anticipating a Santa rally, I'm starting this post to remember this moment.

Understanding the Risks of 3x Leverage Investing: Volatility Decay

Stock prices only go up and down, but why is it so complicated?!



Today's topic is volatility decay. It means that losses occur due to volatility, and the term 'decay' seems extremely negative. I learned about volatility decay while engaging in leveraged investing. It refers to the loss that occurs in response to the fluctuation (1x) of the underlying asset on which leveraged investing is based. That's why the term 'volatility decay' doesn't seem to be used for 1x investing. From a 1x investor's perspective, volatility is just something that happened. 2-3x leveraged products, on the other hand, experience significant volatility, leading to the risk of decay. Thus, those who oppose leveraged investing use the example of volatility decay to argue that it's an investment that should never be done.


In summary, if you hold for a long time, you suffer losses just from the ups and downs, and if it's 23x, the loss is even greater. In this situation, although a 1x investment would have also incurred losses, a 23x investment would have incurred far greater losses, making the argument against it very reasonable. I agree 100%. Since the stock price of the invested asset has not exceeded the previous high for what seems like a long time – a year – it's highly likely that it's been moving sideways in a range below the previous high, and there's a high probability that it's currently experiencing losses.


These are the questions that are lingering in my mind.

  • Should I invest in 1x products instead?!
  • Leveraged investing should be avoided, but are these products just bait? Are they targeting me?!
  • It seems like 5x products are also coming out these days. Are they products designed to make me completely fail?!


This is a truly serious matter that requires careful consideration. Most people, if they were to go back in time to when they made the decision to invest in a 3x leveraged product with their current memory and mindset, would probably never invest in a 3x leveraged product again. However, at that time, I think I had the following thoughts:


  • I'm someone who can't predict the market's large or small movements.
    (When I buy, the price goes down, and when I sell, it goes up. Is it really science?! Am I the only one?!)
  • If I believe it's a bull market, I'll invest in 3x leverage, and if it starts to decline, I'll switch to 1x investing.
    Or I can't time the market to maximize profits by holding dollars, etc.
    (My buying and selling actions seem to trigger the opposite movement, and I absolutely can't predict it.)
  • I don't have a large investment amount to follow expert investors or entrust my investments to them.
    Considering fees, I need to generate even more profit.
    (I thought it would be better for me to invest and take responsibility. Sigh)


I tried to objectify myself, but I can't help but feel my self-esteem decreasing. A subtly negative feeling is deeply rooted within me.

I won't be able to do it. Sigh


At least I want to commend myself for recording my current thoughts and mindset. And, a rebellious thought crossed my mind.


  • Given that I'm hesitant about this and that, should I just not invest at all?!
  • Is it possible to become wealthy as an ordinary salaried worker without investing?!


The desire to become wealthy was clear. There are definitely other paths to becoming wealthy, and just as I was determined to pursue an automated business, I realized that I also needed clear criteria for investing. So, I established some internal standards. (No matter what anyone says, I'm going to invest in stocks! I'll be the one to lose my own money! Woo hoo! 🎵)

I will only invest within a range where it's okay for the investment to become 0.
Among the investment instruments I currently know, I will invest in the one with the highest potential for wealth creation.
While it would be great to become wealthy quickly through the chosen investment instrument, I need to be able to endure the process for at least 10 years.

I was pondering how much investment capital I should allocate and what kind of investment I should make given my current financial situation. As mentioned earlier, I placed greater importance on automated businesses, which resulted in limited investment in learning and time. Ironically, this allowed me to quickly establish execution criteria for investments. Below are the decisions I made to implement the above criteria.


  • I will invest the principal I can afford in a 3x leveraged US stock ETF. (Maximum profit potential, reduced fees)
  • I will use the grid trading method for short-term profit opportunities. (Short-term trading, profit realization, reinvestment of profits)
    For details about the grid trading method based on my experience and thoughts, please refer to the following!!
  • It needs to be automated to avoid my intervention. (Time saving, mental protection)



The worst-case scenario would be if my assumptions were wrong.


  • US stocks are no longer the best option.
  • Instead of resolving, negative factors like inflation, war, and raw materials have accumulated.
  • Delisting of the investment asset lol (I've realized lately that this is entirely possible.)
  • The automated program malfunctioned, leading to the loss of all funds. (Cut losses, fees, and losing the principal)


To what extent are my assumptions incorrect?! Lol That's why my account is in this state. Most people, looking at my current stock account, would say...

Understanding the Risks of 3x Leverage Investing: Volatility Decay

It's great that with 3x leverage, you can see a 30% increase in a single day, but the estimated rate of return is quite bleak. Haha.


It's a disaster. 100% failure. Lol
More than half of my investment capital is gone. Where did it go?

⁠⁠⁠⁠⁠⁠⁠
You're right. If I sell everything now, it's just a complete failure. Lol My 2022 investment has, against my intention and unexpectedly, forced me to hold for a longer period. And if it rises after holding it for a long time?! I'll make a 1% profit and sell it (after fees, it's about 0.5% lol). But since I'm not good at it, I need to pursue this automated investment approach while creating more revenue streams.

I have these thoughts, but what are your thoughts around November 11, 2022? Feel free to share your opinions or offer some encouragement. I really need encouragement these days. Lol

I wish you and everyone a meaningful year-end. 🙏

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