Dealers work on February 20, 2025 in New York City on the New York Stock Exchange (NYSE).
Spencer Platt | Getty pictures
Spend some time with the trading volume and you will notice something interesting: Many investors have recently been meeting oversized bets on the stock exchange.
Most of them are long bets, but some are short.
This is easy to recognize because there is a growing segment of the ETF business that investors who want to make short-term oversized bets on the stock market market.
These are levered and inverse ETFs. Leveraged ETFs reinforce the daily returns of an index or a stock with financial derivatives. For example, if an index rose by 1% in one day, a 2 -fold ETF would deliver a return of 2%, a 3% return would provide a 3% return.
An inverse ETF delivers the opposite daily performance. A double-in-verse ETF would therefore decrease by 2% on a day on which the index rose by 1% and vice versa.
These leverage/inverse ETFs grow not only in assets. They become a larger part of the daily trade volume of the ETF universe, which becomes a larger part of the overall trade.
Who uses these products? It has a lot to do with the general increase in speculative behavior on the market. The trade, Bitcoin and other speculative products rose.
“We continue to see more investors who bend into the levers to express short -term views on the market, and given the volatility and daily market -moving headlines, it is not surprising that we see a higher volume and more assets in the room,” enter Douglas Yones, CEO from Direxion, one of the largest providers of leverage providers, CNBC, CNBC, CNBC, and CNBC.
Grow as a share of assets
The first lever/inverse ETFs in the USA started in 2006 and allowed long or short bets on indices such as S&P 500 or Nasdaq 100. Lever and inverse one-standard ETFs were created in 2022, and they too grown quickly.
The biggest, Prosharesultratro QQQ (TQQQ), which delivers a 3 -subject fog exposure to that Nasdaq 100 (QQQ) has assets of almost 26 billion US dollars. One standard ETFs that use Nvidia And Tesla Also have significant assets.
Largest levered/inverse ETFs
(Assets in management)
Prosharesultratro QQQ (TQQQ) 25.7 billion USD
Direxion Daily Semiconductor Bull 3x (SOXL) 8.5 billion US dollars
Proshares Ultra QQQ (QLD) 7.9 billion US dollars
Proshares Ultra S&P 500 (SSO) 5.5 billion US dollars
Direxion Daily S&P Bull 3x (SPXL) 5.0 billion US dollars
Direxion Daily Tsla Bull 2x (TSLL) 3.5 billion US dollars
Graniteshares 2x Long NVDA (NVDL) 4.2 billion US dollars
Part of it is a bull market effect: the stocks have increased sensibly in recent years, so that the total assets are higher. However, these leverage/inverse ETFs are not only growing assets, but also become a larger part of the ETF universe.
When ETFs had an assets of around 2 trillion dollars (AUM) in 2016, according to Strategas, the lever/inverse ETFs were about 2% of this AUM.
Today ETFs have an administrative assets of around 11 trillion dollars, but the fog/inverse ETFs form around 81 billion US dollars or almost 8% of the total AUM.
Why do these products grow?
“I think there is a generation effect in the game. I think there is a big appetite among younger dealers who want to play with lever due to the profits that it can offer,” said Todd son, head of ETFs at Strategas, to CNBC. “The entry barriers are extremely low. You can buy these products on your phone.”
Yones estimated that 75% of ownership of these products were retail traders and 25% institutional, including hedge funds, melting melt, large brokerage companies and “everyone who has a book with positions that wants to be neutral”.
He estimated that a small but significant percentage of retail dealers (12% -15% of the total amount) came from outside the United States, which stood in line with previous reports on the growing demand for 24-hour trading with retail dealers in South Korea, Japan and Europe.
Growing part of the daily trade volume
Lever and inverse ETFs, including leverage and inverse single hard drives, are now evident every day to the most traded ETFs.
An easy way to look at this is the average daily daily volume of dollars, the total amount of money that is traded every day in ETF.
The top ETFs of Daily Dollar Volume are still ETFs that are bound to the largest indices, mainly S&P 500, Russell 2000 and Nasdaq 100.
Top ETFs with an average of 3 months daily dollar volume
SPDR S&P 500 (spy) 27.7 billion US dollars
Investco QQQ (QQQ) 15.3 billion US dollars
Ishares Russell 2000 (IWM) 5.7 billion US dollars
Ishares Core S&P 500 (IVV) 3.9 billion US dollars
Source: strategist
However, the fifth largest ETF after an average daily daily volume in the past three months is the Prosharesultratro QQQ, which offers triple use of the NASDAQ 100.
A total of five of the 20 top -20 ETFs become negative/vice versa after average daily dollar volume.
Leveraged/Inverse ETFs: largest AVG. 3 months daily dollar volume
Prosharesultratro QQQ (TQQQ) 3.8 billion US dollars
Direxion Daily Semiconductors Bull 3x (SOXL) 2.1 billion US dollars
Direxion Daily Tsla Bull 2x (TSLL) 1.5 billion US dollars
Proshares UltraPro Short QQQ (SQQQ) 1.4 billion US dollars
Graniteshares 2x Long NVDA (NVDL) 1.3 billion US dollars
Source: strategist
The daily reset
These products are bets on short -term dynamics, but have an additional function that has proven to be difficult for investors to wrap their heads: they reset every day.
Due to compounding effects, it can be difficult to find out which actual returns will be more than every day. This means that holding a second -fold -Leveraged product can lead to a little less than a 2 -fold return, depending on the instructions of the market.
Here is an example: Suppose that the S&P 500 rose 10% in one day and then 10% the next day.
An investment of 100 US dollars would look like this:
S&P 500: Hypothetical investment $ 100
Day 0 $ 100
Day 1 (by 10%): $ 110
Day 2 (by 10%). $ 99
After two days they have 99 US dollars, so they dropped by 1%. If you had a leverage product in these two days, it seems that you have sunk 2%or you have 98 US dollars.
But that doesn't happen due to the daily reset.
S&P 500: Hypothetical investment of $ 100 in 2x Leveraged
Day 0 $ 100
Day 1 (by 10%, moved by 20%): 120 USD
Day 2 (by 10%, decreased by 20%) 96 USD
You actually have 96 US dollars instead of 98 US dollars and note this, and this excludes the fees.
Over time, these calculations become increasingly complex.
As a result, those who offer these products routinely indicate that they are not intended for buying investors.
These funds have very large daily sales, so that most investors seem to understand the risk of keeping these products more than every day.
But gen CNBC said that all investors in Leveraged products should be very careful.
“At some point, however, it helps to take the risks when the market goes south,” Sohn told CNBC.
Doug Yones, CEO of Direxion, will be on Monday at 12:35 p.m. ET on the ETF edge of the half and also from 1:30 p.m. ET on the ETF edge. He is accompanied by Todd Rosenbluth, head of research at Vettafi.