US retail investors fuel surge in leveraged ETF trading, study shows

• Leveraged single-stock ETF trading now represents 8% of total U.S. exchange trading, with volume growing 29% annually since their 2022 debut, outpacing stocks and options
• Asset managers including Direxion are pushing for SEC approval of 3x to 5x leveraged products, but regulators have repeatedly rejected these applications
• The April 2025 market volatility around Trump's tariff announcements served as a 'litmus test,' with retail leveraged ETF trades hitting 40% of all market activity at peak periods

US Retail Investors Drive Surge in Leveraged ETF Trading

Key Findings:

A new study by Direxion, Vanda Research, and The Compound Insights reveals that retail investors account for nearly 90% of all leveraged single-stock ETF trading in the U.S. market. These products, which allow speculation on short-term stock movements, now represent 8% of total U.S. exchange trading volume.

Market Growth:

The number of leveraged single-stock ETFs has exploded 318% since January 2025, rising from 80 to 355 products. Trading volume has grown 29% annually since these products debuted in late 2022, outpacing growth rates for both stocks and options. This expansion reflects increasing market reliance on speculation, according to Morningstar analyst Bryan Armour.

Companies Mentioned:

Direxion recently filed for SEC approval of 20 new ETFs tied to individual stocks including Nvidia and Palantir, seeking authorization for 3x leveraged exposure. The SEC has repeatedly rejected asset managers' attempts to offer even higher leverage products (3-5x returns).

Stress Test Results:

During the April 2 "Liberation Day" tariff selloff under President Trump, retail trades in leveraged single-stock ETFs peaked at 40% of all U.S. market trading activity, marking their "first litmus test under stress."

Market Implications:

The surge highlights intensifying retail speculation and growing competition among asset managers to capture this demand. Relaxed regulatory guidance on leverage has enabled rapid product proliferation, though with potential "unintended consequences," according to Direxion's Chief Product Officer Mo Sparks. Analysts emphasize the need to monitor how these products perform during future market downturns.