Cost guide and model transparency
The Real Cost of a Leveraged ETF
The expense ratio is visible and comparable, but it is not the complete cost. Leveraged exposure requires financing and derivatives; trading, tracking and taxes add product- and investor-specific effects.
Methodology reviewed August 13, 2026. Not tax or investment advice.
Six cost layers that should not be mixed together
| Component | What it means | Treatment in the simulator |
|---|---|---|
| Expense ratio / TER | Published recurring fund operating expenses. | Modeled as the annual fund-cost input. |
| Financing | Interest on exposure above the investor’s capital. | Historical overnight rate × (leverage − 1). |
| Implementation | Swap spreads, futures rolls, collateral and counterparty terms. | Simplified 0.75% annual spread × (leverage − 1). |
| Tracking difference | Realized gap between the fund and its daily target after every effect. | Not a separate input; it reflects real fund implementation. |
| Trading | Bid-ask spread, brokerage and potential premiums or discounts to NAV. | Only configurable for SMA trades through spread and flat-cost fields. |
| Taxes | Depends on jurisdiction, account, distributions and trading activity. | Simplified only for configured SMA trading; not tax advice. |
How this site models daily U.S. leveraged returns
For each trading day, the model starts with the index return multiplied by the selected leverage. It then subtracts three daily cost blocks: the historical U.S. overnight rate on additionally financed exposure, the entered annual fund cost and a fixed 0.75% spread for each extra unit of leverage.
Annual values are allocated across trading days in the implementation. The formula is a readable summary, not the exact daily code expression.
Why the rate environment changes the economics of leverage
At 2x, roughly one additional unit of exposure is financed; at 3x, roughly two are financed. When the reference rate rises, the financing block in the 3x model therefore grows about twice as much as in the 2x model.
A backtest using one constant current rate would distort past zero-rate, high-rate and crisis periods. The site therefore uses a dated historical overnight-rate series.
What to look for in a prospectus
- Gross and net expense ratios and the expiration date of any fee waiver
- Whether swap financing, interest or acquired-fund fees are included in the ratio
- Daily investment objective and the benchmark used
- Tracking risk, counterparties, collateral and tax disclosures
See current examples in our U.S. fund guide.