It's difficult to pinpoint investor intent when it comes to exchange-traded funds (ETFs), according to Ryan Lee, Direxion's Senior Vice President of Product and Strategy. Activity reflects both speculation and hedging.
"Due to the nature of the ETF wrapper, it is impossible to pin down exact end-use cases of trading behaviors," Lee told Benzinga. "Active traders think bi-directionally… an opportunity to buy a bear fund when the trader believes the underlying asset will dip, may be just as attractive to them as buying a bull fund when they think it will rise."
At the same time, he added, "savvy traders are often keen to hedge a position that they have in their portfolio."
In other words: some are swinging for the fences, others are buying insurance — and often the same trader may be doing both.
Leveraged Single-Stock ETFs
Retail traders are powering nearly all the activity in one of the market's fastest-growing niches: leveraged single-stock ETFs.
A Reuters report, citing a study co-authored by Direxion, Vanda Research and The Compound Insights, found that individual investors account for almost 90% of trading in these funds. Despite launching only in late 2022, the products made up 8% of total U.S. exchange trading volume last year.
Morningstar Direct data cited by Reuters shows 355 leveraged single-stock ETFs are now listed in the U.S., including 275 launched since January 2025. Trading volume in the segment is growing at a 29% annual rate, outpacing both stocks and options.
Do These ETFs Influence Markets?
With leveraged single-stock ETFs making up 8% of total exchange trading, questions are emerging about market impact and price discovery.
Lee pushes back on the idea that these funds drive underlying stock prices. Direxion's single-stock ETFs gain exposure via swaps with major banks, meaning the ETF's price moves proportionately with the underlying equity times the leverage factor.
"The underlying stock will always drive price discovery for the ETF," Lee said. "A bank's swap is entirely exogenous to the underlying equity."
A Stress Test Last April
The study highlighted the April tariff-driven selloff — dubbed "Liberation Day" — as the category's first real stress test. At times, retail trades in leveraged single-stock ETFs accounted for up to 40% of total market activity.
Rather than amplifying volatility, Lee argues retail activity added liquidity. "Liquidity begets liquidity," he said, noting that leveraged long ETFs saw inflows as traders bought the dip, while inverse funds experienced outflows as downside hedges were monetized.
Saturation Or Structural Shift?
With product launches accelerating, some analysts have warned of saturation. Lee says demand remains robust.
"The only answer to if a market is over saturated is if investor and trader interest has dried up," he said. "Thus far, we continue to see demand for new and innovative forms of leveraged ETFs."
He also argues these funds have already become a real-time barometer of retail sentiment. Direxion's largest single-stock leveraged products are tied to high-profile AI names such as Tesla, Micron Technology, Meta Platforms, Palantir Technologies and Nvidia — stocks that have dominated retail trading in the AI era.
As AI leadership broadens, Lee expects traders to follow. With memory emerging as a bottleneck in the AI buildout, he pointed to strong growth in Direxion's 2x daily Micron ETF (NASDAQ:MUU) and other semiconductor-linked products.
Looking ahead to the next correction — even one as dire as some market prognosticators predict — Lee says traders will continue to use leveraged and inverse ETFs to express views.
"What we do know is that traders will use leveraged and inverse ETFs to express their views," he said. And in times when liquidity often evaporates, he argues, their participation "should certainly be additive."
Whether that liquidity proves stabilizing in a future crash remains an open question. But for now, one thing is clear: retail traders aren't just participating in leveraged single-stock ETFs — they are the market.
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