Quora Answer: How Often Do Leveraged ETFs Rebalance?

The following is my answer to a Quora question: “How often do leveraged ETFs rebalance?” 

A leveraged exchange-traded fund (ETF) is a security which uses a financial derivative or debt to amplify the returns of an underlying index.  Unlike a traditional ETF, which tracks the securities in its underlying index on a one-to-one basis, a leveraged ETF typically aims for a 2:1 or 3:1 ratio.  This means they have to track that underlying index as closely as possible.  Any deviation from the mean amplifies the gain or loss by the factor of the leverage. 

It is impossible to track without there being some deviation.  That deviation amplifies over time if it is not corrected.  As such, leveraged ETFs rebalance at the close of each trading session to minimise that tracking error.