Leveraged ETF Rebalancing Mechanism

The net value of leveraged ETF is the fair trading price of ETF shares in the secondary market. However, due to the fluctuation of market sentiment, there may be a deviation from the fair price (net asset value) in the secondary market in a certain period of time, resulting in a certain premium.

When the premium exists, in order to ensure that the trading price of tokens closely follows the fair price and protect the interests of ordinary users from being usurped by arbitragers, the fund manager side readjusts the fund positions by introducing the position rebalancing mechanism to ensure that the net asset value loss will not exceed a certain limit. (When the target assets fluctuate in the opposite direction and exceeds a given threshold.)

Position rebalancing mechanism is divided daily and temporarily:

Repositioning is usually performed daily at 00:00:00 (UTC+8) to ensure that the portfolio leverage ratio does not deviate too far from the agreed ratio.

When there is a sharp fluctuation and the underlying asset ’s fluctuation exceeds a given threshold compared to the previous rebalance point (initially we set the threshold for 3x leverage short and long as 15%, in the future, if other leverages available, the threshold may be adjusted), we will perform temporary rebalancing to control the risk of the investment portfolio.

Temporary rebalancing is only for the relevant target that triggered the threshold, and no adjustment is made to other targets.

Statement:

• Leveraged ETFs are emerging financial derivatives. The above content does not constitute investment advice. Please pay attention to risk control.
• Leveraged ETF greatly reduces the risk of being forced liquidated, but there will be risks of approaching zero and being liquidated in extreme market conditions. Please pay attention to the difference between net value and price to avoid losses.