Traders worked on the New York Stock Exchange (NYSE) floor in New York City on February 20, 2025.
Spencer Platt | Getty Images
Take some time to check the volume and you will notice something interesting: Recently, many investors have been betting on the stock market.
Most of them are long bets, but some are short.
It is easy to see this because the increasing number of ETF businesses can satisfy investors who want to make large short-term bets on the stock market.
These are leverage and inverse ETFs. Use ETFs to use financial derivatives to expand daily returns on indexes or stocks. For example, if the index rises by 1% per day, a 2x leverage ETF will bring a 2% return and a 3x will bring a 3% return.
Inverse ETFs provide opposite daily performance. Therefore, when the index rises by 1% and vice versa, the 2-inverse ETF will drop by 2%.
These leveraged/inverse ETFs not only grow in assets. They are becoming the majority of daily trading volume in the ETF universe, which is becoming a larger part of overall trading.
Who is using these products? This has a lot to do with the overall rise in market speculation. Trading in options, Bitcoin and other more speculative products is on the rise.
“We will continue to see more investors tend to leverage to express short-term views on the market and given all the volatility and headlines of day-to-day marketing, it’s not surprising that we’re seeing higher volume Space, “Douglas Yones, CEO of Direxion, one of the providers of leveraged/reverse ETFs, told CNBC.
Growth as a share of assets
The first leveraged/inverse ETF in the United States began in 2006, allowing long or short bets on indexes such as the S&P 500 or NASDAQ 100. Leveraged and reverse single-stock ETFs appeared in 2022 and they grew very quickly.
maximum, ProSharesultrapro QQQ (TQQQ), which can provide 3x leverage exposure Nasdaq 100 (QQQ) owns nearly $26 billion in assets. Single-share ETFs used Nvidia and Tesla There are also a lot of assets now.
Maximum leverage/inverse ETF
(Assets managed)
ProSharesultrapro QQQ (TQQQ) USD 25.7 billion
Direxion Daily Semiconductor Bull 3X (SOXL) $8.5 billion
ProShares Ultra QQQ (QLD) $7.9 billion
Proshares Ultra S&P 500 (SSO) $5.5 billion
Direxion Daily Standard & Poor’s Bulls 3X (SPXL) $5 billion
Direxion Daily TSLA BULL 2X (TSLL) $3.5 billion
Graniteshares 2x long NVDA (NVDL) $4.2 billion
Part of this is due to the impact of the bull market: stocks have increased meaningfully over the past few years, and therefore total assets are higher. However, these leveraged/reverse ETFs are not only growth assets, but they are becoming a larger part of the ETF universe.
According to Strategas, in 2016, when the ETF owns approximately $2 trillion in assets under management (AUM), the leveraged/inverse ETF was about 2% of that AUM.
Today, ETFs have approximately $11 trillion in assets under management, but Utilization/inverse ETFs account for approximately $8.1 billion of assets, accounting for nearly 8% of the total AUM.
Why do these products grow?
“I do believe there is a generation that I think is a big appetite among young traders who want to be able to play leverage due to the benefits it can provide,” Todd Sohn, head of Strategas ETF, told CNBC. “The barrier to entry is extremely low, and you can buy these products on your phone.”
Yones estimates that 75% of the ownership of these products are retail merchants, with 25% of institutions including hedge funds, trading tables, large brokerage firms and “anyone who has books that want to become a market-neutral job.”
He estimates that a small but large number of retail merchants (12%-15% of the total) come from outside the United States 24-hour trading demand Retailers in some cases are from South Korea, Japan and Europe.
Part of daily transaction growth
Leveraged and inverse ETFs, including leveraged and inverse single ETFs, now usually appear in the most traded ETFs every day.
An easy way is to trade in the ETF by the average daily dollar amount.
The top ETFs in the daily dollar are still associated with the largest indexes, mainly the S&P 500, the Russell 2000 and the Nasdaq 100.
Average ETF volume for 3 months per day
SPDR S&P 500 (spy) $27.7 billion
Invesco QQQ (QQQ) USD 15.3 billion
Ishares Russell 2000 (IWM) $5.7 billion
Shared Core S&P 500 (IVV) $3.9 billion
Source: Strategist
However, the fifth largest ETF on average daily dollar over the past three months is Prosharesultrapro QQQ, which provides three times the leverage ratio of the Nasdaq 100.
In total, five of the 20-year ETFs are leveraged/reverse.
Leverage/Inverse ETF: The largest AVG. 3 months of daily dollar rolls
ProSharesultrapro QQQ (TQQQ) USD 3.8 billion
Direxion Daily Semiconductor Bull 3X (SOXL) $2.1 billion
Direxion Daily TSLA BULL 2X (TSLL) $1.5 billion
ProShares Ultrapro Short QQQ (SQQ) USD 1.4 billion
Graniteshares 2x long NVDA (NVDL) $1.3 billion
Source: Strategist
Daily reset
These products are betting on short-term momentum, but they have proven to have an additional feature that investors have a hard time looking around: it will be reset every day.
Due to the complex effects, it is difficult to figure out what the actual benefits will be except for the daily situation. This means that holding a 2x leverage product for more than a day may result in a return significantly lower than 2x, depending on the direction of the market.
Here is an example: Suppose the S&P 500 has risen 10% one day, and then it has fallen 10% the next day.
A $100 investment looks like this:
S&P 500: Assuming $100 to invest
Day 0 $100
Day 1 (up 10%): $110
Day 2 (down 10%). $99
Two days later, you have $99, so you’re down 1%. If you have leveraged products in those two days, you appear to be down 2%, or you are priced at $98.
But due to the daily reset, this is not what happened.
S&P 500: Assuming $100 invest 2x leverage
Day 0 $100
Day 1 (Grow 10%, utilize 20%): $120
Day 2 (down 10%, utilizing 20%) $96
Actually, you have $96 instead of $98, remember that doesn’t include the fees.
Over time, these calculations become more and more complex.
As a result, those who provide these products often show that they are not investors who buy and hold.
The daily mistakes of these funds are huge, so most investors seem to understand the risks of holding these products, rather than daily.
But Sohn told CNBC that investors in all leveraged products must be very careful.
“At some point, whenever the market turns south, this helps take the risks involved,” Sohn told CNBC.
Direxion CEO Doug Yones will be on the edge of the ETF at halftime at 12:35 PM ET on Monday and will also be live on ETF Edge from 1:30 PM ET. Vettafi research director Todd Rosenbluth will join him.
