TNA ETF Guide: Direxion Daily Small Cap Bull 3X Shares

While some traders prefer to focus on the most popular indices, often including large-cap companies, others would rather trade small market capitalisation indices like the Russell 2000. The Direxion Daily Small Cap Bull 3X Shares (TNA) fund provides an opportunity to use a leveraged ETF (Exchange-Traded Fund) to capitalise on bullish daily movements of the Russell 2000 (USD 2000 (RTY)). Let's explore the TNA ETF and how it can fit into a trading strategy focused on small-caps.

TL;DR

• The Direxion Daily Small Cap Bull 3X Shares is an ETF that aims to deliver daily returns of 300% of the performance of the Russell 2000 index.
• This ETF from Direxion was created in 2008.
• The Daily Small Cap Bull 3X Shares ETF from Direxion is listed on Wall Street on the NYSE Arca.
• This index is overseen by FTSE Russell, which is a subsidiary of the London Stock Exchange Group (LSEG-L).
• The value of the ETF can be influenced by a multitude of factors, including macroeconomic trends, interest rates, and company-specific events included in the Russell 2000.

Understanding the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF

Understanding the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF, the role of the Russell 2000 within the US indices market, and which are the major companies included in the ETF can empower you to make more informed decisions in the small-cap market.

TNA Stock Explained: What is the Direxion Daily Small Cap Bull 3X Shares ETF?

The Direxion Daily Small Cap Bull 3X Shares is an ETF or Exchange-Traded Fund (ETF) that aims to achieve daily investment results, before fees and expenses, three times the performance of the Russell 2000. It's important to understand that the ETF's ability to achieve its stated objectives is not guaranteed.

Let's now define what the Russell 2000 index is to better understand what the Direxion Daily Small Cap Bull 3X Shares represents.

The Russell 2000 index, a key indicator of the US market, tracks the performance of 2,000 small-cap stocks. It represents roughly 10% of the total US market and is a subset of the broader Russell 3000 index.

What Are Some of the Companies Included in the ETF?

As of June 2024, the top ten stocks of the TNA ETF consisted of:

1. Super Micro Computer (SMCI)
2. Microstrategy (MSTR)
3. Carvana Co
4. ELF Beauty Shares
5. Comfort Systems USA
6. Onto Innovation Inc
7. Chord Energy Corporation
8. Ftai Aviation Ltd
9. Insmed (INSM)
10. Light & Wonder Inc

What Are the Sector Weightings of the ETF?

As of June 2024, the TNA ETF's portfolio was allocated across various stock sectors with the following weightings:

1. Industrials = 17.25%
2. Financials = 15.98%
3. Information Technology = 15.28%
4. Healthcare = 15.16%
5. Consumer Discretionary = 10.42%
6. Energy = 7.48%
7. Real Estate = 5.61%
8. Materials = 4.52%
9. Consumer Staples = 3.52%
10. Utilities = 2.59%
11. Communication Services = 2.19%

*Please note that sector weightings can be subject to changes

What Is the Strategy of this ETF?

Trading, unlike investing, focuses on capturing short-term market movements, but success lies in accurately predicting these trends at the right time (among other things). Direxion's bull TNA ETF equips traders with a way to trade bullish markets, providing targeted exposure to upside potential.

Additionally, the TNA ETF aims to deliver returns that are three times the daily performance of the Russell 2000 index. This 3X leverage magnifies potential gains, enabling traders to capitalise significantly on positive market days. However, it's important to remember that leverage also magnifies potential losses on days when the market moves against your position.

Understanding How Leveraged ETFs Work

How Do ETFs Work?

ETFs can be compared to baskets of various financial instruments like stocks, bonds, currencies, or commodities that provide diversification benefits to traders. They trade like stocks on stock exchanges and can also be traded via CFDs (Contracts For Difference).

There are different types of ETFs, including Commodity ETFs, Equity ETFs, Crypto ETFs, Currency ETFs, Real Estate ETFs, Sector ETFs, and Specialty ETFs like the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF. A specialty ETF, also known as a thematic ETF, is an ETF that targets a specific sector, industry, or investment theme.

The TNA ETF specifically targets the small-cap market. Through its leveraged structure, it aims to deliver a daily return three times the performance of the Russell 2000 index.

What Are Leveraged ETFs?

Leveraged ETFs are a unique type of trading product that use tools like financial derivatives and debt, such as future and forward contracts, options, and swaps, to magnify the returns of the underlying asset. While a standard ETF mirrors the performance of its underlying index (1:1 ratio), a leveraged ETF aims to amplify those returns, often potentially doubling (2:1 ratio) or even tripling (3:1 ratio) them.

However, this amplification comes with significant risks. Leveraged ETFs are designed to achieve their leveraged objectives on a daily basis, mostly used for day trading. This means their performance over longer periods can deviate significantly from the underlying asset. They are inherently volatile and can experience substantial losses if the market moves against the trader's position.

Advantages and Risks of Trading the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF

While trading small-cap indices like the Russell 2000 can present unique challenges compared to trading major large-cap indices, they also offer distinct opportunities. Let's examine the pros and cons of trading the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF, which reflects the performance of the Russell 2000.

What motivates traders to trade the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF?

• Exposure to Small-Caps: Trading the TNA ETF provides exposure to the potential growth of small-cap companies, which can outperform in favourable economic conditions.
• Diversification: Trading the TNA ETF provides exposure to a diversified portfolio of small-cap stocks, reducing the risk associated with trading individual companies.
• US Market Strength: Its broad coverage provides a reliable gauge of the market's overall strength and direction.
• Predictive Power: The Russell 2000's sensitivity to economic changes makes it a valuable indicator of overall economic health. The index's historical tendency to lead other indices can help traders anticipate market movements.
• Leverage: The leveraged aspect of the ETF can attract traders because it offers the potential for magnified returns. The TNA ETF can significantly amplify gains during positive market days by aiming for a 300% daily performance of the Russell 2000 index. However, it is also riskier.
• Accessibility: As an ETF, the TNA is a relatively liquid asset, offering easy buying and selling throughout the trading day, making it accessible to a broad range of traders.

What are the potential risks of trading the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF?

• Leverage: Because the TNA ETF is a leveraged ETF, it can lead to significant losses if the market isn't moving in the right direction. For instance, if the Russell 2000 is losing 2%, then the value of the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF should be multiplied by 3 and equal -6%.
• Higher Fees: Due to its complex structure and the use of derivatives to achieve its leveraged objectives, the TNA ETF - as a leveraged ETF - typically comes with higher fees and expense ratios than its traditional ETF counterparts.
• Focus on the Daily Performance: Because the ETF seeks to magnify the daily returns of the Russell 2000, it might limit its appeal to some longer-term traders relying on swing trading or position trading.
• Tracking Error Risk: Several factors can hinder the ETF's ability to closely track the Russell 2000's daily performance, impacting its ability to achieve its leveraged objective. The index's movements can lead to potential over or under-exposure, especially on days with high market volatility near market close.

What Can Drive the Price of the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF?

Because the TNA ETF tracks the value of the Russell 2000 with the goal of providing daily returns 3 times the performance of the index, traders might want to understand the factors that can drive the Russell 2000 before getting into the Direxion Daily Small Cap Bull 3X Shares (TNA) ETF trading.

Here are some factors that move the index:

• Economic Data: The broader economic landscape, including monetary policy decisions, inflation, GDP, and political events, can significantly impact the Russell 2000 and consequently the TNA ETF.
• Factors Specific to Certain Industries: Developments within specific industries represented in the Russell 2000, such as technological advancements, regulatory changes, or shifts in consumer behaviour, can also influence the ETF's value. It is especially true for the industrial, financial, technology, healthcare, and consumer discretionary sectors, as they represent more than 74% of the Russell 2000 index composition as of June 2024.
• Company News: News and events related to individual companies within the index, including earnings reports, changes in management, new clients, or mergers and acquisitions, can create volatility and impact the ETF's performance.
• Trader Sentiment: The overall mood and expectations of traders regarding the Russell 2000 can significantly impact buying and selling activity, influencing the ETF volatility and value.

How to Trade the Direxion Daily Small Cap Bull 3X Shares (TNA) CFDs with Plus500

CFDs on ETFs, or Contracts for Difference on ETFs, are derivative products that allow traders to speculate on price movements of an ETF without owning the ETF shares with long and short positions to trade rising and falling markets. CFDs are contracts between a trader and a broker that derive their value from the underlying ETF's price.

You can go long (buy) if you expect the ETF price to rise or short (sell) if you expect it to fall. CFDs also provide leverage, allowing you to control a larger position than your trading capital would typically allow you to. While this can magnify potential profits, it also significantly increases the risk of losses.

Have a look at Why You Should Consider Trading CFDs to see if CFD trading fits your trader profile.

9 Steps to Follow to Trade the Direxion Daily Small Cap Bull 3X Shares (TNA) CFDs with Plus500

1. Understand how ETFs work.
2. Build a solid foundation for trading.
3. Learn how you can use CFDs on ETFs in your trading.
4. Choose your trading style.
5. Write your trading plan.
6. Create your Plus500 CFD account.
7. Take time to learn how to trade with Plus500.
8. Find the TNA ETF on the trading platform.
9. Open and monitor your CFD positions on TNA.

Conclusion

The Direxion Daily Small Cap Bull 3X Shares (TNA) ETF offers traders a tool to leverage the potential of the Russell 2000 index. However, they should recognise the risks associated with leveraged ETFs and approach them cautiously to maximise their chances of trading the small-cap world with greater confidence.

Here are some other ETFs offering an exposure to the Russell 2000 you can find on Plus500:

• iShares R2000 (IWM)
• Direxion Daily Small Cap Bear 3X Shares (TZA)
• iShares Russell 2000 Value ETF (IMW)
• ProShares UltraShort Russell 2000 ETF (TWM)
• iShares Russell 2000 Growth ETF (IWO)

If you're ready to explore the potential of TNA, open a trading account with Plus500 and start trading Direxion Daily Small Cap Bull 3X Shares ETF with CFDs.