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Proshares Ultrapro QQQ, TQQQ, or Ultrapro Short, SQQQ? Short or long?

Or, given investment plans, is some other instrument entirely a better idea?

Update : 07 Jun 2023, 06:25 PM

A decision between ProShares UltraPro QQQ (NYSEARCA: TQQQ) and ProShares UltraPro Short QQQ (NYSEARCA: SQQQ) is actually pretty simple. Are we trying to go short or long? Or, to get those the right way around, long or short. Do we think NASDAQ is going to rise today? Then TQQQ. If we think it's going to fall then SQQQ.

For the basic idea is that each of these two ETFs will track, with a three times leverage (so, they will rise/fall three times as much) as the NASDAQ-100 Index. One of them is set up to rise with the index, the other is set to rise when the index falls. So, assuming we've an idea of market direction that we wish to speculate upon then the choice between TQQQ and SQQQ is easy enough. As we can also see they do move as the inverse of each other



TQQQ share price from NASDAQ

SQQQ share price from NASDAQ

If we don't have a view on which way the NASDAQ-100 is going then we shouldn't be playing in either TQQQ or SQQQ of course.

However, life - obviously - gets more complicated than that. It's near always possible to gain the same economic or market exposure in different ways. Tehre will be costs and benefits to each of the different ways. The thing about leveraged ETFs is that they're deliberately constructed to be useful really only for intraday trading. They reset every day, there are considerable management expenses, holding either of these for months is guaranteed to lose you money. They're just not built for that - they're for short term speculation.

Buting a standard NASDAQ-100 ETF is the way to buy and hold - either way, there are short ETFs as well. And if you desire the leverage then you can simply borrow from your broker in order to gain that. 

But there are other ways too. This isn't open to Americans but a contracts for differences broker will happily provide a contract on the NASDAQ-100. And that can be leveraged. Or there are futures and options on the index - either of those will provide both a position and leverage. 

The advantage with TQQQ and SQQQ, for those short term, intraday, operations is that the buy/sell (or bid/offer) spread is tiny to non-existent. Meaning that a flat trade can be very cheap indeed. There's little to no payment into the market for the privilege of being able to make the trade that is. Options and futures might offer a longer term for the speculation but that gap between buy and sell price will be larger.

Our point here is not to try to recommend going short or long, to bet on the NASDAQ-100 index or even to trade on indices at all. Rather, it's to point out that there are almost always different instruments that can be used to construct a whole market trade like this. Which one is best to use depends upon the specific aims of your trade. Leveraged ETFs are for intraday trades, maybe, just maybe, overnight as well.

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