Remy Blaire: Leveraged and inverse trading tools are expanding rapidly, as active investors look to magnify daily views on everything from AI and semis to corporate credit and international markets. REX Financial recently expanded its MicroSectors lineup with 19 new tickers issued by Bank of Montreal, including MNGU, the first ETP linked to the NYSE MaNGoS+ Index, but with +3x and -3x daily resets. Path dependency and issuer credit risk are critical considerations for traders.
Joining us live on set to explain how these daily tools work and who they are built for is Mike Eschmann, managing director of business development at REX Financial. Mike, great to have you here. Thank you so much for joining us here at Stocktoberfest.
Michael Eschmann: Thanks for having me, Remy. It’s my pleasure to be here.
Remy Blaire: Well, first and foremost, for our viewers out there, tell us about MicroSectors and the importance of Bank of Montreal’s credit risk.
Michael Eschmann: Yeah, absolutely. So, you know, MicroSectors is a suite of leveraged ETNs that REX partners with the Bank of Montreal on. The ETN is a different wrapper than an exchange-traded fund. There are a number of different benefits to ETNs, but there are also different risks that apply to an ETN as opposed to an ETF.
One of those, as you mentioned, is credit risk. These are notes, or unsecured debt, of the Bank of Montreal. So when investing in an ETN, any ETN, it’s important to understand who the issuer is and the credit rating behind that issuer, as another risk that you have to consider when using these types of products.
Remy Blaire: Yeah. And Mike, I understand you’re very vocal when it comes to trader education, especially when it comes to daily resets. So give us an understanding of who the target trader profile actually is when it comes to these products.
Michael Eschmann: Yeah, sure. It’s sophisticated traders. And you know, the users of these types of products are sophisticated. They have high conviction, very knowledgeable about the markets and the sectors that they’re covering. And they’re using the leveraged products to really amplify that view or that conviction on, you know, a particular sector or theme.
You know, the leveraged products have been in the market for 20 years now. It’s a fairly mature market. It has grown quite significantly over the past five years. But for the most part, we’re seeing these traders, these, you know, sophisticated tactical traders, understand the risks of the leveraged products.
And as you mentioned, one of the main risks is that these reset on a daily basis. They’re only designed to give you three times or negative three times the return of the underlying on a given day, and then the next day it will do the same, so on and so forth. So that has implications for how the products work over longer periods, and traders need to understand what those are before using these products.
So we are big proponents of education and disclosure, you know, letting these traders and sophisticated users of the products understand the risks involved. Daily compounding over longer periods really affects how these products work in different markets. So it’s important that traders understand that. And over 20 years or so, that’s generally been the case, for the most part. They’re being used in the right way, the way that they’re designed to be used, and the right types of people are using them. Again, the sophisticated, very high-conviction trader.
Remy Blaire: And Mike, you and I are here at City Winery in New York City for Stocktoberfest. And we all know that the community for Stocktwits is very active. And when we’re talking about acronyms, you mentioned the difference between ETNs versus ETFs. But we all know that when it comes to different types of trades, Wall Street loves acronyms. So I do want to ask you about MaNGoS. We know 2026 has been quite the volatile year, whether we’re talking about the Mag Seven, WAG Seven and Mag Seven back again, or the FANG trade. For viewers out there who might not be as familiar, tell us about the MaNGoS+ AI suite.
Michael Eschmann: Yeah, so again, MaNGoS is another acronym. You know, one of our more popular ETNs is the FANG+. FANG+ goes back a ways and is yet another acronym for, you know, basically the biggest tech stocks in the world. MaNGoS is sort of a new version of that. The big difference there is it’s including two stocks that are not yet public, in Anthropic and OpenAI.
So our ETN is a MaNGoS product ex those two stocks. They will eventually find their way into the index post-IPO. But again, this is a 10-stock index, the highest, most liquid tech stocks in the US right now.
Remy Blaire: And while I have you here, we all know that event risk has been something that all traders have been paying attention to in 2026. But when it comes to tactical catalyst trading, especially when it comes to some of your 3x products, tell us about risk management.
Michael Eschmann: Yeah. So there’s all different forms of risk management. There’s risk management on, you know, when we’re creating a product, what we’re looking at. There’s risk management that BMO considers as the issuer when they’re launching a product. And then there is the risk management of the trader themselves and what they’re using the products for.
And, you know, it’s funny, the leveraged products are very often associated with risk and how risky they are, and certainly they can be. But we actually see a lot of traders use them to mitigate risk. You know, whether it be through shorting, or the inverse funds to hedge long positions, or inversely, to use long positions to hedge short positions. Or to use the leverage to get exposure to a particular sector, freeing up cash to deploy elsewhere. So they can often be used to actually mitigate risk in a trader’s portfolio.
From our standpoint, when we’re looking to build a product, we’re looking at the index itself and the volatility of that index, and the possibility that it could move 33%. You know, these being triple-leveraged products, can this index move 33% in a day, one way or the other, up or down? That’s definitely a consideration for us. That could wipe out one of the funds, be it the bear fund if it’s to the upside, or vice versa. So that’s certainly things that we look at and consider when working to build out the index.
And then conversely, you know, BMO as the issuer has their concerns as well. They have risk protocols that they’re considering when we bring an index to them. They’re looking at the capacity of the underlying stocks. You know, can they hedge them properly? Can they hedge their exposure properly as the product scales? You know, if this product had a billion, 2 billion, 3 billion, are they comfortable with hedging out their exposure on a daily basis?
So all those different risks are inherent in the products. And, you know, as long as we’re doing everything we can to disclose all of those risks to the end user, the investor, they can use them as tools to express a view or even manage risk themselves.
Remy Blaire: And Mike, finally, before I let you go, there’s a lot happening when it comes to product innovation. But what should retail traders out there keep in mind?
Michael Eschmann: Yeah. You know, retail traders should be diligent about pursuing the education around these types of products. You know, you now have leveraged single-stock products, leveraged ETNs, leveraged ETFs. There are various different flavors, but there are some key things, namely, you know, the daily resetting nature of these products, that they always have to kind of stay on top of and be sure that they understand the risks involved. And from our standpoint, we’re trying to do the same, to help educate on those risks and disclose them in every way, shape and form that we can.
Remy Blaire: Well, Mike, I appreciate your time. Thank you so much for joining us today and weighing in. I appreciate you joining us at Stocktoberfest here in New York.
Michael Eschmann: Great to be here. Thank you.
