Leveraged ETFs Keep Coming to Market. You Probably Should Avoid Them.

Traders working at the New York Stock Exchange (NYSE), on Wednesday, October 8, 2025.

With a growing list of exchange-traded funds that offer leveraged bets on individual stocks, placing a risky wager on a short-term stock move has become almost as easy as betting on the outcome of a football game from a smartphone.

Research from Strategas senior ETF and technical strategist Todd Sohn shows that one out of every four ETFs launched over the past six months has been a leveraged product. While leveraged ETFs represent just 1% of the total ETF assets under management, they account for 12% of the average daily volume in the space, Sohn says. This makes them the second-most active ETFs on a daily volume dollar basis behind regular equity ETFs.

The rise of leveraged ETFs reflect the equity market’s current mood. With the stock market up nearly 35% since the April bottom and the S&P 500 near a record high, risk has been in vogue. Leveraged ETF’s also thrive in low-volatility environments, Sohn says, especially when the stock market has been calmly hitting record highs.

“These are especially effective when it’s a market that just goes straight up,” Sohn says.

The rise of leveraged ETFs is yet another piece of evidence that market sentiment has gotten frothy, at least in the short term. It’s not the kind of signal that should derail the long-term bull case for investors, Sohn says, but it does mean “we should be looking to play a little bit more defensive for a couple of months.”

A trade, not an investment

Just because leveraged ETFs are becoming increasingly available doesn’t mean they’re a good idea. As Interactive Brokers chief strategist Steve Sosnick notes, these products are really meant to be “trading vehicles, not investment vehicles.”

This is because leveraged ETFs reset every day. So on any given day, an ETF like Direxion Daily TSLA Bull 2X Shares ETF , which trades under the ticker TSLL and is among the most active symbols on the Interactive Brokers platform, aims to double Tesla’s daily performance using derivatives, which means it doubles losses as well as gains.

But even if a stock is up over a more extended period, the returns aren’t always a clear two times higher. High fees charged by these products can weigh on long-term returns, but the real damage is done by both the daily reset and the volatility within the individual stock.

“If you’re systematically buying calls to get exposure, or buying puts to get exposure, you are by definition buying an asset that you know where time works against you,” Sosnick says. “So over time you will suffer slippage.”

Comparing returns for Tesla and Nvidia with 2X ETFs tied to these stocks highlights that point. After a volatile nine months, Tesla shares are up about 6% on the year. But Direxion’s 2X Tesla ETF is down almost 35% in 2026. The extreme losses from earlier this year have weighed down the ETF for anyone who tried to hold it consistently for the past nine months.

Created with Highcharts 9.0.1Going long leverageLeveraged ETFs tied to Tesla and Nvidia have had varying returns in 2025.Source: FactSetAs of Oct. 15, 4 p.m. ET

Created with Highcharts 9.0.1NVIDIA Corp.GraniteShares 2x Long NVDA Daily ETFTesla Inc.Direxion Daily TSLA Bull 2X Shares2025Oct.-100-75-50-250255075%

Nvidia stock is up roughly 34% this year. Granite Shares 2X Long Nvidia Daily ETF , however, is up just 30% since the start of 2025, though it has roughly doubled Nvidia’s 63% rise over the past six months with a 135% gain.

But the same could be said for the downside. Nvidia’s year-to-date low had shares down about 30% on the year back in April. The 2x ETF was down nearly 60% for the year at the same point, proving that while these products have become more popular they aren’t for the faint of heart.

“These are extremely volatile,” says Strategas’ Sohn. “They’re only meant to be held for a day, and there’s a massive amount of risk, like they can blow up, and you can lose all your investment in one day.”

Unless you’re an active trader, you probably don’t need this leverage in your portfolio.

Write to Josh Schafer at josh.schafer@barrons.com