89% Of Active Traders Confident About Generating Returns In Bull Or Bear Markets, According To New Direxion Trader Sentiment Survey

Exchange-Traded Funds (ETFs) were traditionally the realm of the buy-and-hold value investor. But, according to a new trader sentiment survey released by Direxion this month, modern traders are increasingly integrating them into their active trading strategies, as funds offering more liquidity and more leverage become available. The uptick in active ETF trading is also due, in part, to the greater availability of information and education on how to trade these funds. Here are some of the key findings from Direxion’s trader sentiment survey.

Active Traders Are Mostly Optimistic About Trading In The Current Market

In October, Direxion, a leading developer of unique leveraged ETFs for thematic or tactical short-term trading, surveyed 500 U.S.-based active traders with at least $25,000 in investible assets and who trade within their account at least monthly.

The findings of that survey were published this month, revealing that 55% of respondents feel optimistic about trading in the current market. 47% were also excited and 48% reported feeling confident about trading in this market.

The reason for that optimism may be less to do with the market itself — 89% believed they could generate returns in both bull and bear markets — and more about the tools they’re using to trade in it. 92% reported having the tools they need to mitigate risk and trade with intelligence.

Younger Generations Are More Aware Of And Comfortable With The Nuances Of Leveraged ETFs 

Leveraged ETFs are designed specifically for short-term trading because they’re made to magnify the yield of each trade. But that also means they come with unique risk characteristics that make them less suitable for holding over longer periods. 

The Direxion survey found that younger traders were generally more knowledgeable about the uses and risks of these unique investment vehicles. 60% of Gen Z/Millennial traders along with 61% of Gen X traders were aware of the nuances of leveraged ETFs and why they’re most ideal for short-term trading only.

While a generation gap exists, the overall trends show that ETFs are increasingly becoming a more common tool among active traders, with 49% saying that they currently hold ETFs in their portfolio and 80% saying they were knowledgeable about ETFs, whether or not they currently hold them.

A Generation Gap Also Exists In Where Traders Find Information To Make Trading Decisions

Another interesting finding from the survey was the generational difference in where active traders go to monitor important developments related to their trades. While 77% of overall respondents reported using social media, the results were heavily skewed toward younger traders when the answers were disaggregated by age. Nearly all (91%) Gen Z and Millennial traders use social media along with 81% of Gen X traders. But among the Boomers and Silent Generation, just 48% reported monitoring social media.

When it comes to using traditional media when making trading decisions, the gap was nearly nonexistent. 95% of both Gen Z/Millennial and Gen X traders reported using it while 83% of Boomers/Silent Generation traders use it. 

Four Sectors Stood Out Among Traders As Offering The Most Return Potential

When asked to identify which sectors they saw significant opportunity in for returns over the next six months, results were split but a few sectors stood out. Tech was the biggest winner with 58% of traders saying they anticipated a lot of active trading opportunities in the volatile sector. 

Other sectors traders were bullish on include financials and banking (35%), healthcare (39%) — including biotech and pharma — and mid-cap stocks (34%). 

Despite the optimism and bullish views on upcoming trading opportunities, Direxion’s own fund flow data showed that traders were monitoring their leveraged ETF trades closely to mitigate risk. Specifically, data analysis showed an inversion relationship between holding period length and market volatility. When volatility increases, the average holding period of Direxion’s leveraged funds gets shorter. The trend suggests traders understand the unique risk characteristics of these ETFs and use them for short-term trades as intended. 

Direxion said the increase in usage and the growing awareness of the unique characteristics of leveraged ETFs was encouraging, but, Andy O’Rourke, Direxion’s Chief Marketing Officer noted, “There’s still work to be done across the industry to educate an even broader swath of traders in a diverse marketplace.” That’s why the company is continuing to grow its Education and Insights center, where traders can find online courses, videos, and other educational content to learn more about what leveraged ETFs are and how to use them in active trading strategies. 

Featured photo by Yan Krukau on Pexels

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