> "Let me help an individual investor grow their portfolio" - said no investment banker ever

Nobody can honestly say this. Trading is about risk transfer. And risks sometimes come home to roost, which means portfolios can always lose money.

That said, broadly, yes. If something seems too complicated, don't buy it.

> Almost every ETF other than a vanilla bond/stock ETF is unadulterated toxic waste that has oozed out from the sewers of finance and will wipe out your capital

This is true, but not (just) because banks are venal. These products are designed for professional traders. There is hedging value, to certain corporates, for having a short-dated commodities future exchange traded product (ETP) leveraged at a benchmark rate. Particularly if that rate floats with the corporate's cost of capital.

> good ole fashioned bond/stock ETFs - if you cannot redeem/create it then don't touch it

Individual investors can never redeem or create ETF units. That's restricted to authorized participants (APs).

APs can create and destroy units of most leveraged ETFs. They can't do that for exchange-traded notes (ETNs), which is where most of the structured stuff lives.

Atleast we agree on the venality of investment banks ;)

Professional traders don't trade leveraged ETFs (ETNs) because they know the friction and carry built into them. A professional trader who wants to make a leveraged bet on S&P will just use e-mini futures.

You missed the point about create/redeem. When I create in SPY I can submit a basket+cash component equivalent to 50,000 shares and get back 50,000 SPY. For redeem, I can submit SPY and get back the equivalent basket and cash component.

ProShares Ultra QQQ (3x NASDAQ) had $5.4B in the trust as per Yahoo finance. The holdings [1] had $13.7B in swaps, $0.5B in treasuries and $2B in stock. How exactly would I create/redeem this basket in kind?

[1] https://www.proshares.com/funds/tqqq_daily_holdings.html

> When I create in SPY I can submit a basket+cash component equivalent to 50,000 shares and get back 50,000 SPY

No, you can't. An authorized participant can.

All ETFs, by definition, involve creation and redemption mechanisms. It's what separates them from other ETPs.

> How exactly would I create/redeem this basket in kind?

You can't.

According to the prospectus [1], "in exchange for the deposit or delivery of a basket of assets (securities and/or cash)". Going into deeper mechanics [2], creation and redemption involve the AP entering into offsetting swaps with the ETP.

[1] https://www.proshares.com/media/prospectus/statutory_prospec...

[2] https://www.proshares.com/media/prospectus/statement_of_addi...

>> How exactly would I create/redeem this basket in kind?

>You can't.

Thank You.

As to your earlier point about AP, the bar is pretty low in SPY because I used to work at desk that was one ;)

Many leveraged ETFs can be redeemed or created, though. ETFs and ETNs are two very different products. ProShares, the issuer behind the popular 3x leveraged NASDAQ 100 and S&P 500 ETFs TQQQ and UPRO, even publishes a fee schedule for redeeming and creating their products [1]. Also, unlike with ETNs, if the issuer of am ETF goes under, you receive the underlying assets. In other words, there's no counterparty risk.

I agree that leveraged ETFs can be dangerous if used incorrectly (look up volatility decay), but they aren't "trash" and they certainly aren't anywhere near as dangerous as even unleveraged ETNs. Here's a resource about the difference between those two, by the way [2]. In short, ETF shares represent a direct stake in the underlying assets, similar to owning equity in a house or business. ETN shares are more like little IOUs along the lines of bonds and loans. They have their place, but they're difficult to use safely, especially when leverage is involved.

[1] https://www.proshares.com/resources/creation_and_redemption_...

[2] https://www.investopedia.com/financial-edge/0213/etf-or-etn-...

They can be redeemed or created but that is a facility for market makers. The redemption is not in kind since you can't redeem swaps. I posted an example in the thread above.

I learned this the hard way during the 2008(ish) crisis when oil dropped from $150/barrel to ~$30/barrel and I sold other assets at a loss to buy USO (an ETF that was ostensibly supposed to track the price of oil). Instead, when oil went up to $80/barrel in a few months, USO increased by ~3% while the other stuff I'd sold at a loss had rebounded (though to a lessor extent than the price of a barrel of oil).

SOMEbody made a multigenerational fortune off of that price discrepancy. The SEC was briefly investigating that episode, but the investigation went away after a while.

As a little guy, you can make a brilliant play by correctly predicting the future and still get totally screwed.

Sorry to hear that atleast you learnt the lesson early. The big flaw is understanding the myth of the "price of oil". There is no such thing. There are grades and dates and delivery locations and the price of storage. You are trading to one point in this multi-dimensional space. In normal times it appears in just one dimension - time - but it times of stress, it explodes.

That futures rollover is a real killer, the winners were sellers of the contracts knowing the ETF would be forced to rollover.

Why did you use USO instead of trading oil futures contracts?

Same here with USO. I didn't fully understand it at the time, so I used USO because you can buy and sell like a stock. I thought that it would just be a proxy for investing in oil futures contracts, similar to how buying SPY is basically a proxy for buying a weighted basket of stocks in the S&P. I learned that I was wrong the hard way (luckily didn't wager anything I couldn't afford to lose).

An ETF is by definition something that can be created or redeemed. If it can't be created or redeemed, then it's an ETN, which is completely different.

Leveraged ETFs are usually composed of debt plus equity, and they can certainly be created and redeemed.

You personally cannot create or redeem any ETF, because the quantities involved are huge and you need to be what's called an "authorized participant".

Any hedge fund or market participant of decent size (by volume) can access the create/redeem market through their trading desk or prime broker. Create/redeem is a pain for the clearing broker as they have move cash/securities around but if you give them enough business they will do it for you.