The double-edged sword of leveraged ETFs in 2025, the ultimate strategy to increase your wealth by cleverly using SQQQ and TQQQ!

With the increase of volatility in the US stock market and the diversification of investors’ risk preferences, leveraged ETFs have gradually become a popular choice for many investors seeking high returns. ProShares’ TQQQ and SQQQ are among the best, respectively, amplifying the gains of S & P 500 technology stocks with 3x leverage and reverse amplifying their losses with 3x leverage, providing investors with opportunities for high risk and high return.

Today, I will analyze in detail the investment mechanism, risk control, and applicability of TQQQ and SQQQ, helping investors make wise choices in the ever-changing market.

First, let’s understand the origin and background of TQQQ and SQQQ!

TQQQ, the star product of current leveraged ETFs

ProShares’ TQQQ (ProShares UltraPro QQQ ETF) is undoubtedly one of the star products in the current leveraged ETF market. TQQQ tracks the performance of the NASDAQ-100 index through 3x leverage, providing amplified market returns.

Since its listing in 2010, TQQQ’s performance has been attracting investors’ attention, especially during the prosperous years of technology stocks. For example, in 2020, TQQQ’s annual return rate was close to 100%, thanks to the strong performance of technology stocks and the strong rebound of global stock markets. In 2021, TQQQ continued to maintain high returns, with an annual increase of about 40%.

However, although TQQQ can bring super high returns in the bull market, its volatility is also very high. For example, in 2022, TQQQ experienced a severe market correction with an annual return of -41%. But this high volatility also means that TQQQ can bring amazing returns when the market rises sharply. For example, in the global stock market rebound in March 2020, TQQQ achieved a monthly increase of over 60%. This amplification effect makes TQQQ an ideal choice for speculative investors with high risk tolerance and a tendency to short-term investment.

According to data from the past decade, the annualized return rate of TQQQ is about 20% -25%, but this return is based on high volatility and leverage risk. Therefore, it is suitable for investors who want to amplify market gains in the short term, especially when the market is rising, TQQQ can provide returns far higher than the market.

SQQQ, the combat power of reverse ETF

In sharp contrast to TQQQ is ProShares’ SQQQ (ProShares UltraShort QQQ ETF). SQQQ amplifies the inverse performance of the NASDAQ-100 index through 3x leverage, aiming to provide returns when the market falls. This makes SQQQ a tool of choice for investors who are bearish on technology stocks or hope to profit from the stock market downturn. Especially when the market corrects or technology stocks face greater pressure, SQQQ often provides remarkable returns.

For example, in August 2022, due to changes in US inflation data and interest rate expectations, technology stocks experienced a sharp pullback, leading to a significant increase in SQQQ’s returns, with a monthly increase of nearly 50%. This surge highlights the strong potential of reverse leveraged ETFs in a market downturn, especially during periods of high volatility, where SQQQ provides investors with significant short-term returns.

The core investment strategies and risk management of both

TQQQ’s core investment strategy is to amplify the returns of the NASDAQ-100 index by using financial derivatives such as futures contracts and options. It tracks the performance of the NASDAQ-100 index daily and amplifies its returns by three times through leverage. That is to say, if the NASDAQ-100 index rises by 1% that day, TQQQ’s return will reach 3%; conversely, if the index falls by 1%, TQQQ’s return will fall by 3%.

The management team of TQQQ adjusts the leverage ratio in real time according to market changes. As leveraged ETFs usually adopt intraday adjustment strategies, TQQQ relies heavily on short-term market fluctuations. For long-term investors, the compound interest effect of TQQQ and the Path Dependence effect of market fluctuations may have a significant impact, so TQQQ is more suitable for short-term holders or investors with higher risk tolerance.

Similar to TQQQ, SQQQ also uses a leverage strategy, but its goal is to reverse amplify the return of the NASDAQ-100 index. SQQQ’s strategy is to use derivatives and lending methods to try to amplify the return to three times when the NASDAQ-100 index falls. Therefore, if the NASDAQ-100 index falls by 1%, SQQQ’s return will increase by 3%; while if the NASDAQ-100 index rises by 1%, SQQQ’s return will decrease by 3%.

However, the risk of SQQQ also lies in its reverse operation characteristics. If the market trend reverses, SQQQ’s losses will quickly increase. Therefore, investors must closely monitor the market trends and changes when operating SQQQ. For example, in March 2022, technology stocks experienced a sharp decline due to global tensions and inflation expectations, and SQQQ’s returns achieved a significant increase. This reverse leverage characteristic makes SQQQ a tool with high short-term returns, but it also comes with greater risks. Investors need to pay special attention to the short-term market trends when using SQQQ and strictly control their positioning to avoid being hit hard during the rebound.

Which investors are suitable for both?

TQQQ is suitable for investors seeking short-term high returns, especially those with high risk tolerance and willing to bear the risk of market volatility. It is particularly suitable for speculative investors with strong market judgment ability, especially those who can accurately predict short-term market trends and hope to amplify returns through leverage. TQQQ is also suitable for investors seeking high returns in the bull market stage, because its profit amplification effect is more obvious when the market rises.

For example, in March 2020, due to the strong rebound of global stock markets, TQQQ achieved a monthly increase of over 60%. This leverage effect makes TQQQ a tool for amplifying profits in the short term. For investors who see opportunities in the market downturn and hope to quickly amplify profits, TQQQ is undoubtedly an ideal tool.

However, TQQQ also has its limitations, especially when held for a long time. Due to the compound interest effect and market volatility, TQQQ may not be suitable for investors with lower risk appetite.

SQQQ is suitable for investors who believe that the market will decline and hope to profit from it. It is particularly suitable for investors with high risk tolerance, especially those who expect a significant market correction or decline in the short term. SQQQ can also serve as a hedging tool in the market downturn phase, helping investors gain profits in bear markets.

Therefore, investors should reasonably layout their Nasdaq assets, choose investment tools that suit them. At the same time, investors can also use the multi-asset trading wallet BiyaPay to query and pay attention to it, and choose the appropriate time to trade online in real-time at any time. They can also withdraw digital currency (U) in US dollars/Hong Kong dollars to their bank accounts, and then deposit and withdraw funds to other brokerage platforms, so that BiyaPay can be used as a professional deposit and withdrawal tool. Investing in these stocks through such a multi-asset trading wallet can not only benefit us, but also facilitate investors to trade US stocks, invest in diversified asset classes reasonably, and cope with future market fluctuations, pushing up the market value of US stocks.

Future Outlook, Balancing Risk and Return

With the increasing market uncertainty, TQQQ and SQQQ, as representative products of leveraged ETFs, will continue to attract investors seeking high returns in the future. However, due to the high-risk nature of leveraged ETFs, investors must maintain clear market judgment and strict risk management to avoid serious losses due to excessive market volatility.

With the increasing demand for more flexible investment tools from investors, there may be more diversified leveraged ETF products in the future, covering different markets, asset classes, and more refined risk control strategies. In this context, TQQQ and SQQQ will face more competition.