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Merchants work on the floor of the New York Stock Exchange (NYSE) on February 20, 2025 in New York City.
Spencer Platt | Getty images
Pass time looking at commercial volumes, and you will notice something interesting: many investors are recently making large bets in the stock market.
Most of them are long bets, but some are short.
It is easy to see this because there is a growing segment of the ETF business that serves investors who want to make large short -term bets in the stock market.
These are ETF leverage and inverse. The leisurely ETF amplify the daily yields of an index or action using financial derivatives. For example, if an index increased by 1%in one day, a leverage ETF 2X would deliver a 2%yield, a 3X would deliver a 3%yield.
An inverse ETF offers the opposite daily performance. Then, a reverse ETF 2x would decrease 2% in one day when the index increased by 1% and vice versa.
These ETF leveraged/inverse are not only growing in assets. They are becoming a most of the daily negotiation volume of the ETF universe, which is becoming a larger part of the general negotiation.
Who is using these products? It has a lot to do with the general increase in speculative behavior in the market. The option of options, Bitcoin and other more speculative products has increased.
“We continue to see that more investors are inclined as a way of expressing short -term opinions in the market, and given all the volatility and daily holders of the market, it is not surprising that we are seeing a greater volume and more active that enter the space “Douglas Yones, CEO of Duexion, one of the largest suppliers of ETF leverage/inverse, told CNBC.
Growing as part of assets
The first ETF leveraged/inverse in the USA. rapid rapid.
The biggest, Prosharesultrapro qq (TQQQ), which provides 3x Exposure leverage to Nasdaq 100 (QQ), has almost $ 26 billion in assets. ETF of a single storage that leverage Nvidia and Tesla They also now have substantial assets.
ETF larger/larger inverse
(Assets under administration)
Prosharesultrapro qqq (tqqq) $ 25.7 billion
Daily Daily Semiconductor Bull 3x (Soxl) $ 8.5 billion
Proshares ultra qqq (qld) $ 7.9 billion
Proshares ultra s & p 500 (sso) $ 5.5 billion
Daily S&P Bull 3x (SPXL) $ 5.0 billion
Daily Tsla Bull 2x (TSLL) $ 3.5 billion
Graniteshares 2x Long Nvda (NVDL) $ 4.2 billion
Part of this is an upward market effect: shares increase significantly in recent years, so general assets are higher. However, these ETF leveraged/inverse are not only growth assets, but are becoming a larger part of the ETF universe.
In 2016, when the ETFs had about $ 2 billion in assets under administration (AUM), the ETF leveraged/inverse were approximately 2% of that AUM, according to Strategas.
Nowadays, ETFs have about $ 11 billion in assets under administration, but the ETF leveraged/inverse represent approximately $ 81 billion of that, or almost 8% of the total AUM.
Why are these products growing?
“I think there is a generational effect on the game, I think there is a great appetite among younger merchants who want to play with leverage due to the profits it can provide,” Todd Sohn, head of ETFs in Strategas, told CNBC. “The entry barriers are extremely low, you can buy these products on your phone.”
Yones estimated that 75% of the property of these products were retail merchants and 25% institutional, which included coverage funds, commercial desks, large brokerage companies and “any person who has a book of positions that wants to be neutral in the market”.
He estimated that a small but significant percentage of retail merchants (12% -15% of the total) were outside the US, which is aligned with previous reports on growth. demand for 24 -hour operations In part of retail merchants in South Korea, Japan and Europe.
Cultivate part of the daily trade volume
The leverage and the inverse ETFs, including the ETFs at once leveraged and inverse, now appear routinely among the most negotiated ETFs daily.
A simple way to see this is by average volume of dollars daily, the total amount of money that is negotiated in the ETF daily.
The main ETFs by daily dollar volume are still linked to the largest indices, mainly the S&P 500, Russell 2000 and Nasdaq 100.
Higher ETFs for an average daily volume of $ 3 months
SPDR S&P 500 (SPY) $ 27.7 billion
Invesco QQQ (QQQ) $ 15.3 billion
Ishares Russell 2000 (IWM) $ 5.7 billion
Core s & p 500 shares (IVV) $ 3.9 billion
Source: strategist
However, the largest fifth ETF by average volume of dollars in the last three months is the prosharesultrapro QQQ, which provides an exhibition three times leveraged to Nasdaq 100.
In total, five of the main 20 ETFs per average volume of dollars are leveraged/inverse.
ETF leverage/inverse: bigger AVG. Daily volume of 3 months dollars
Prosharesultrapro qqq (tqqq) $ 3.8 billion
Daily Daily Semiconductors Bull 3x (Soxl) $ 2.1 billion
Daily Tsla Bull 2x (TSLL) $ 1.5 billion
PROSHARES ULTRAPRO SHORT QQQ (SQQQ) $ 1.4 billion
Graniteshares 2x Long Nvda (NVDL) $ 1.3 billion
Source: strategist
The daily restart
These products are bets on short -term impulse, but they have an additional feature that has been difficult for investors to conclude: they are restored daily.
Due to the compound effects, it can be difficult to discover which real yields will be more than daily. This means that maintaining a 2x leverage product for anything more than one day can lead to substantially less than a 2x yield, depending on the market management.
Here is an example: suppose that the S&P 500 rose 10% one day, then 10% the next day.
An investment of $ 100 would be seen:
S&P 500: Hypothetical investment of $ 100
Day 0 $ 100
Day 1 (up to 10%): $ 110
Day 2 (minus 10%). $ 99
After two days of this, it has $ 99, so it has dropped by 1%. If I had an leveled product during those two days, it seems that it would have dropped 2%, or that it would have $ 98.
But due to daily restart, that is not what happens.
S&P 500: Hypothetical investment of $ 100 in 2x leverage
Day 0 $ 100
Day 1 (10%more, took advantage of 20%): $ 120
Day 2 (minus 10%, leveraged 20%) $ 96
Actually, it has $ 96, instead of $ 98, and keep in mind that this excludes rates.
As time passes, these calculations become progressively more complex.
As a result, those that offer these products routinely affirm that they are not intended for purchase and retention investors.
These funds have very large daily losses, so most investors seem to understand the risk of maintaining these products more than daily.
But Sohn told CNBC that all investors in leverage products had to be very careful.
“However, at some point, it helps to take stock of the risks involved every time the market takes a turn to the south,” Sohn told CNBC.
Doug Yones, CEO of Duexion, will be in the portion of ETF Edge halftime at 12:35 pm et on Monday, and will also be broadcast live in ETF edge from 1:30 pm et. Will join Todd Rosenbluth, head of research at Vettafi.
