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In essence, leverage is borrowing money or using credit to potentially earn higher returns. But along with the potential for higher returns, leverage also increases the risk of an investment.

Example: Let's say you purchased a $150,000 home with $15,000 down. A few years later, you sell the house for $160,000 - that's a 6.7% return on the value of house but a 67% return on your actual investment. The use of leverage (the mortgage) allowed you to capture the return on a $150,000 asset with only a $15,000 initial investment.

The chart above displays the leveraged UltraBull fund's daily performance, which is typically 2X that of the S&P 500 Index.

• Why use leverage to invest? If successful, leverage can give you a better rate of return with a smaller investment. On a typical day, if the market index moves up by 1%, a leveraged index fund can produce 2%.

• How does leverage affect my investment? Leverage is the tool that many of the ProFunds use to seek performance above their benchmarks. Just as you might use a mortgage to buy a $150,000 house, ProFunds uses leverage to increase its exposure to stock indexes.

Concepts

Neural Networks

Leverage

Short Selling

Market Timing

Active Investing

BrainTrader Investments is an independent Registered Investment Advisor and is not affiliated with ProFunds. As is the case for any investment, the advisor cannot guarantee future performance and there can be no certainty that the investment objectives of the strategy can be achieved. An investment in the strategy is a high-risk investment. Investors may lose a substantial portion or all of the money they invest in the strategy, which is suited only to sophisticated investors who can afford the risk involved. Only capital that the investor can afford to lose should be invested in a strategy of this nature, and investors are recommended to consult with their tax professional before investing in the strategy.