'There Are Now Over 234 Leveraged And Inverse ETFs': Leveraged ETFs Surge In Popularity Among Traders, Says Expert

Leveraged and inverse exchange-traded funds (ETFs) are gaining traction among traders seeking short-term market opportunities.

These financial instruments, which magnify daily market movements, are becoming essential tools in the trading world.

Eliott Wellenbach, senior vice president of institutional ETF strategy at Direxion, and Gianni Di Poce, an analyst at The Mercator LLC, discussed these ETFs’ growing traction during Benzinga’s ‘Level Up Your Trading with Leveraged ETFs‘ virtual event.

"There are now over 234 leveraged and inverse ETFs in the marketplace, managing about $100 billion in assets," Wellenbach shared. Direxion, a major player in this market since 1997, manages approximately $42 billion in assets, focusing on these niche financial products.

Understanding the Mechanics

Leveraged ETFs aim to deliver multiple times the daily performance of their underlying indices. "These are intended as short-term tactical trading products," Wellenbach explained. He highlighted the critical daily rebalancing mechanism, ensuring that the ETF maintains its intended exposure — whether 2x or 3x, bull or bear. This rebalancing is vital for achieving the desired leverage each day.

"We want to make sure that any trader with these products understands how these work," he emphasized.

Trader Preferences and Market Trends

The leveraged and inverse ETFs market shows a clear preference for bullish products. "A lot of traders tend to be a little bit more bullish," Wellenbach noted.

These products are frequently used for short-term trades on both sides of the market. The 3x bull funds, in particular, are popular, reflecting a generally optimistic market sentiment.

However, bearish traders also find value in these ETFs. Gianni Di Poce, an analyst at The Mercator LLC, remarked, "These products are used for short-term trading on the bearish side, too."

Importance of Trader Education

Both Wellenbach and Di Poce stressed the importance of education for traders using these complex products.

"Leveraged ETFs are not suitable for long-term investment due to their daily rebalancing," Wellenbach said. Direxion provides a range of educational resources, including videos and literature, to help traders understand these ETFs’ intricacies.

Di Poce added, "Understanding market cycles and the rebalancing mechanism is crucial for effective trading with these tools."

Noteworthy Trading Behavior

Di Poce also shared insights into trading behavior during the event, particularly around technology stocks.

Nvidia's rise has significantly impacted the Technology Select Sector Index. The company is now weighing as heavily as Microsoft, reflecting traders’ dynamic responses to market movements.

"Tech stocks, especially with leveraged ETFs, are seeing a lot of trading action," Di Poce mentioned.

The increasing popularity of leveraged and inverse ETFs underscores their growing role in modern trading strategies. These products offer substantial opportunities for traders who understand their mechanics and are willing to engage in short-term trading. As the market for these ETFs expands, education and awareness remain crucial for their effective use.

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