Costs explained simply
What a Leveraged ETF Really Costs
The published fund fee is only one part. Financing, contracts used by the fund, trading and differences from the daily target can also reduce returns.
Reviewed August 26, 2026. Not tax or investment advice.
Six costs to check
| 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. |
What 0.5% or 1% means over ten years
This simple example starts with $10,000. The market does not move. Once a year, only the assumed fee is deducted.
0.5% per year
$9,511.10 left
The fee reduces the value by $488.90.
1% per year
$9,043.82 left
The fee reduces the value by $956.18.
Each year, the fee is deducted from the new value. That is why the calculation is not simply ten times the annual fee.
This is not a forecast or an exact fund calculation. Real funds usually deduct costs over time. Market moves, financing, trading, taxes and differences from the daily target also matter.
How the simulator calculates daily costs
For each trading day, the model first multiplies the index return by the selected leverage. It then subtracts three costs: the short-term U.S. rate at that time for the financed part, the entered fund fee and a fixed 0.75% charge for each extra unit of leverage. All annual values are spread across individual trading days.
The formula is only a simple summary. A real fund can have different costs and may miss its daily target.
Why higher rates cost more
At 2x, the model finances roughly one extra dollar for each dollar invested. At 3x, it finances roughly two. When the short-term rate rises, this cost therefore grows about twice as much at 3x as at 2x.
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. Our dividends guide explains how to interpret distributions.
SEC: mutual fund and ETF fees and expenses · SEC: leveraged ETF risks and costs