Retail Investors Drive Ninety Percent of Trading in High-Risk Single-Stock ETFs

2026-02-24 economy

New York, Tuesday, 24 February 2026.
A joint study reveals individual investors drive nearly 90% of leveraged single-stock ETF trading, underscoring a growing retail appetite for high-stakes speculation distinct from institutional strategies.

Retail Dominance in High-Risk Derivatives

A pivotal study released today, February 24, 2026, by ETF provider Direxion, in collaboration with Vanda Research and The Compound Insights, has quantified the extent of retail participation in the volatile world of leveraged single-stock exchange-traded funds (ETFs). The data reveals that individual investors are responsible for nearly 90% of all trading volume in these complex instruments within the U.S. market [1][2]. This finding marks a significant shift in market dynamics, distinguishing the behavior of non-institutional traders who are increasingly gravitating toward high-risk, amplified exposure strategies. The report highlights that throughout 2025, these specific financial products accounted for 8% of total trading volume across all U.S. exchanges, a notable figure given their specialized nature [1].

A Surge in Listings and Volatility

The landscape of leveraged products has expanded rapidly to meet this demand. As of early 2026, there are 355 leveraged single-stock ETFs listed in the United States [1]. The velocity of this expansion is evident in the listing data; 275 of these funds have been launched since January 2025, representing a massive influx of new products in just over a year [1]. This proliferation has coincided with periods of extreme market sensitivity. For instance, during the “Liberation Day” tariff announcements by President Donald Trump around April 2, 2025, retail trades in these specific ETFs surged to encompass up to 40% of all trading activity in U.S. markets, illustrating how retail capital aggressively chases volatility during macroeconomic shocks [1][2].

The Mechanics of Amplified Exposure

These financial instruments are engineered to magnify daily returns, typically utilizing short-term loans or “total return swaps” from banks to achieve their leverage targets [4]. For example, to triple the return on a $100 million investment, a fund manager effectively directs a bank to invest $300 million on their behalf, with the bank collecting interest on the loan [4]. While this structure allows for outsized gains, it introduces significant risks, particularly “volatility decay.” Because these funds rebalance daily, a decline in the underlying asset forces the manager to sell positions to maintain the set leverage ratio, potentially locking in losses [7]. A mere 1% rise in an underlying stock might yield a 2% gain in a 2x leveraged fund, but a 20% drop in the asset results in a punishing 40% loss for the ETF investor [7].

Regulatory Friction and Future Outlook

Despite the inherent risks, asset managers are actively seeking to expand the boundaries of leverage available to the public. On February 21, 2026, Direxion filed to offer 20 new ETFs tied to high-profile stocks such as Nvidia and Palantir, aiming to provide traders with three times the daily exposure to these companies [1]. This move comes even as U.S. asset managers face resistance from the Securities and Exchange Commission (SEC) regarding products that would offer three to five times the upside of an underlying stock [1][2]. The industry’s push reflects a lucrative market segment; as of February 23, 2026, the “Leverage | Inverse – Single Stock” category managed $26.5 billion in assets, attracting $182 million in new capital in just the prior week [8]. Conversely, the broader leveraged equity category saw outflows of $729 million during the same period, suggesting a specific retail preference for single-stock bets over broader market indices [8].

Sources

Retail Investors Leveraged ETFs