Leveraged ETFs ride retail trading boom as single-stock bets redefine market stress playbook

Retail investors have rapidly transformed leveraged ETFs from niche tactical tools into a central feature of modern trading behavior, according to new research.

The white paper, Leveraged Funds and The Active Trading Boom, examines how retail traders are increasingly using leveraged ETFs and ETNs to express short-term market views and how those behaviors have evolved across major market downturns since 2020.

The findings of the research from Direxion conducted in partnership with Vanda Research and The Compound Insights, the research and intelligence arm of The Compound Media, an affiliate of Ritholtz Wealth Management, point to a structural shift in trading activity fueled by pandemic-era market participation, easier access to sophisticated strategies, and rapid product innovation.

Pandemic trading habits reshape leveraged funds

Leveraged funds are designed to magnify daily gains or losses tied to an index, sector or individual security and have existed since 2006, but the report argues their trajectory fundamentally changed during the Covid pandemic era as retail participation surged.

Since 2020, average leveraged fund volumes have expanded at roughly a 29% annual pace, outstripping growth in both options and stock trading volumes, according to data cited in the report.

Pandemic lockdowns, increased smartphone trading access and the rise of self-directed investors helped accelerate adoption. Equity trading volumes rose sharply during the period, options activity more than, and everyday investors became significantly more comfortable using complex market tools.

Leveraged ETFs offered a simpler way to pursue amplified exposure without opening margin accounts or navigating derivatives approvals, the research notes.

Today, those products play a disproportionately large role in retail trading.

From April through July 2025, roughly 5.5% of overall US equity trading activity came from active retail traders, yet about 90% of leveraged fund turnover was driven by that same cohort — highlighting how central the products have become to self-directed investors.

Product innovation fuels rapid expansion

The growth has coincided with a wave of new launches.

As of mid-2025, 452 leveraged funds were listed in the United States across asset classes ranging from equities and commodities to crypto and foreign exchange, according to data in the report.

Equity strategies dominate the space, accounting for roughly 81% of available products and about 90% of turnover.

Single-stock leveraged ETFs which were introduced in mid-2022, have been a particularly powerful catalyst. Funds tied to widely followed companies such as major technology firms quickly captured investor attention and now represent roughly half of leveraged equity fund volume.

The report describes 2025 as a landmark year for innovation, with the number of active leveraged funds expanding at the fastest pace since before the global financial crisis.

At the same time, total assets invested in leveraged products climbed to approximately $160.5 billion by late November, while trading volume was on pace to more than double year over year.

Retail behavior changes during market stress

The study analyzes leveraged ETF activity during three recent market shocks: the COVID bear market in 2020, the inflation-driven downturn of 2022, and the tariff-triggered “Liberation Day” selloff in 2025.

During the early pandemic collapse, leveraged ETF turnover more than quadrupled as traders rapidly shifted between bullish and bearish positions amid extreme volatility.

Retail investors increased inverse ETF exposure as markets fell but flipped bullish almost immediately at the market bottom of March 23, 2020, the same day the S&P 500 surged 9.4%. Commodity strategies also briefly surged in popularity, particularly oil funds, when crude prices fell below zero for the first time in history.

The slower, grinding decline of 2022 produced a different reaction.

Retail traders initially leaned heavily into long positions, effectively attempting to buy the dip. As the selloff dragged on, however, exhaustion set in and investors gradually accumulated short positions. Even after equities bottomed in October 2022, leveraged ETF flows took roughly a month to turn decisively bullish again.

The research suggests sentiment, rather than price action alone, played a major role.

Individual investors were deeply pessimistic during the period, with bearish sentiment reaching levels not seen since the global financial crisis.

Single-stock funds tested in 2025 turmoil

The 2025 “Liberation Day” tariff shock provided the first major stress test for the rapidly growing single-stock leveraged ETF category.

Markets fell nearly 19% during the episode after unexpected tariff announcements triggered sharp volatility. Yet retail traders largely resisted following momentum downward.

Instead, investors continued buying long leveraged funds for 35 consecutive trading days during the decline, effectively betting on a rebound.

Equity funds accounted for more than 90% of turnover throughout the drop and subsequent recovery, with traders concentrating heavily on individual technology names that had experienced steep losses.

In several cases, investors continued purchasing leveraged Tesla and Nvidia funds even as the stocks fell more than 30%, highlighting a strong “buy-the-dip” mentality.

Confidence eventually weakened near the bottom, however, when activity briefly shifted toward broad market ETFs and even non-leveraged funds — a sign some investors were retreating from higher-risk strategies.

Momentum and contrarian trading both emerging

The report concludes that leveraged ETFs are evolving beyond momentum trading tools.

Historically, flows tended to follow market direction, but the 2025 selloff showed investors increasingly willing to take contrarian positions.

Researchers suggest that long-short positioning data could eventually become a proxy for retail sentiment, offering market participants another gauge of investor psychology.

Rising trader sophistication may also drive new strategies, including pair trades or volatility-focused positioning that increasingly resembles options-market tactics.

Overall, the report notes that leveraged ETFs are no longer a fringe product but are becoming a primary vehicle through which retail traders express conviction whether chasing momentum, hedging risk or betting against prevailing market trends.