Lecture 7: What is "Share Merging Mechanism" for Leveraged ETFs

MXC launched "Share Merging Mechanism" for leveraged ETFs on January 16, 2020.

But what is "Share Merging Mechanism"? 

"Share Merging Mechanism" means that when the net value of a leveraged ETF product becomes lower than 0.05 USDT, MXC will merge the shares of the product based on certain merging ratio. After merging, the price of the net value of the ETF product will be up certain times and the quantity owned by the user will be down to 1/times according to the merging ratio. As such, the total asset of the user who own the leveraged ETF product will stay the same. 

Let's have an example. Suppose the price of ALGO3L is now 0.002 USDT because of market fluctuation, it triggers the "Share Merging Mechasim" according to the rules. Let's say the merging ratio is 100:1 (the ratio is determined by the market performance). Accordingly, after merging the price of ALGO3L will be up 100 times to 0.2 USDT while the quantity of user's position for ALGO3L will be down to 1/100. In this sense, user's total asset for ALGO3L will stay the same. 

Why we launch "Share Merging Mechanism"?

Because of the volatile crypto market, the net value of some leveraged ETF may sometimes plunge to a very low price. It severely affects the price sensitivity if there's another fluctuation. Therefore, MXC launches the "Share Merging Mechanism" to improve price sensitivity and bring better trading experience. 

Disclaimer

Leveraged ETF is an emerging financial product. The content above does not constitute investment advice. Please watch out investment risks.

Leveraged ETF reduces the risks of liquidation, but in extreme conditions there’s possibility that the price will approach zero and be liquidated. Please pay attention to the difference between order price and net value, to avoid losses.