MW The 'Squid Game' market: Risky leveraged ETFs boomed in 2024. Now comes the bust.

By Joseph Adinolfi

Even with many of these funds struggling in 2025, investors haven't lost their taste for using them to wager on daily swings as volatility has picked back up

In the public imagination, exchange-traded funds have long been typecast as staid, index-tracking products designed to help investors build wealth over time by holding a large and diversified group of stocks or other assets while paying low fees.

But a newer generation of funds is turning that ethos on its head. Instead of using diversification to help preserve and grow wealth, leveraged ETFs are enticing some to place risky bets on short-term market swings.

By some measures, 2024 was the biggest year yet for leveraged ETFs, which aim to amplify the daily returns of a given underlying asset or index. Taken together, these products saw total assets under management balloon by nearly $40 billion, the largest increase since the first such fund launched in the U.S. back in 2006, according to data from Morningstar Direct. While equity funds appear to be the most popular, investors can also buy leveraged ETFs that deal in bonds; commodities, such as gold; and cryptocurrencies including bitcoin.

In total, leveraged ETFs currently boast $100 billion in assets across all products.

To be sure, leveraged funds remain a relative niche in the booming ETF market. Last year's jump in assets represents a small fraction of the more than $1 trillion that flowed into all ETFs, according to Morningstar data - a record sum.

As investors poured in money, issuers rushed to launch new products, eager for a hit that resonates with investors. More than 60 new LETFs were launched last year, the most in a single year on record, according to Morningstar data. Many offered leveraged daily exposure to individual stocks.

    Year   Number of LETFs launched 
      2006                         4 
      2007                        20 
      2008                        16 
      2009                        14 
      2010                        28 
      2011                        17 
      2012                         9 
      2013                         5 
      2014                         9 
      2015                        24 
      2016                         8 
      2017                        12 
      2018                        10 
      2019                        13 
      2020                         4 
      2021                        25 
      2022                        25 
      2023                        13 
      2024                        62 
      2025                         9 
    Total                        327 

Source: Morningstar Direct

But in early 2025, the market took a turn. While the S&P 500 sank into the red, and was recently sitting on a 3.2% year-to-date loss, many popular LETFs have tallied losses that are far larger.

The Leverage Shares 2X Long TSLA ETF TSLG, which aims to double daily returns on Tesla Inc., has fallen 70% in 2025 as shares of the EV maker have fallen by 38%. The fund only just launched in December.

The ProShares UltraPro QQQ ETF TQQQ, which offers three times daily leverage on the Nasdaq-100 index of big technology stocks, was down more than 22%, according to FactSet data. The ProShares fund was the largest in the LETF space as of the end of last year, with nearly $25 billion in assets under management, Morningstar data showed.

The GraniteShares 2X Long NVDA Daily ETF NVDL, which tracks shares of chip maker Nvidia Corp. $(NVDA)$, has fallen more than 32%, while the Direxion Daily Semiconductor Bull ETF, was down more than 27%. Nvidia's stock is down by 14% so far in 2025.

Losses for the cohort have piled up as trendy stocks like MicroStrategy Inc. $(MSTR.AU)$, which is now doing business as Strategy, Palantir Technologies Inc. (PLTR); and Nvidia have stumbled. All three companies have at least one popular LETF aiming to supercharge their daily swings. There are also inverse ETFs that rise when shares of these companies fall.

Despite the pullback, investors have continued to rush in and buy the dip on major down days, FactSet data show.

NVDL, the LETF tied to Nvidia, took in more than $1.5 billion on Jan. 27 as the arrival of China's DeepSeek AI sent shares of the chip designer into free fall.

Some have questioned, even as this popularity reflects investor demand, whether awareness of risks is sufficiently high.

"The economist Milton Friedman also had this view: If people want to gamble, then they should be allowed to gamble. And if they want to gamble in the stock market, well, that's up to them," said Owen Lamont, a portfolio manager at Acadian Asset Management, during an interview with MarketWatch. "But is their gambling hurting the stock market and making it less effective for capital allocation? If you're buying a levered ETF on the whole Nasdaq or QQQ, then you're probably not hurting anybody."

As fund issuers gravitate toward ever-riskier products, some are concerned that individual investors might underestimate the possibility that one of these LETFs could blow up in their face.

Since these funds typically get their leverage via swap agreements with banks, a large enough swing in an underlying stock could force a liquidation. This risk of serious financial losses is frequently highlighted in these funds' paperwork.

While the U.S. market has circuit breakers that limit how much an individual stock index can move during a single trading day, no such limit exists for individual stocks. Although they can be temporarily halted for volatility by the exchanges.

Still, there have been plenty of signs that demand for these products remains strong, despite the volatility seen since the start of the year.

Direxion on March 14 dropped a massive filing seeking permission to launch 71 leveraged or inverse ETFs. A few days earlier, Tidal dropped a filing with more than a dozen products primarily tied to individual stocks, including Hims & Hers Health Inc. $(HIMS)$ and Rigetti Computing Inc. (RGTI).

The T-Rex 2X Long DJT Daily Target ETF DJTU, which offers leveraged exposure to shares of Trump Media & Technology Group Corp. $(DJT)$, launched earlier this month.

Back in January, Rigetti shares crashed more than 45% during a single session. To be sure, filing a prospectus is merely a first step toward launching a new fund. Firms can later decide not to move ahead, for whatever reason.

But a similar drop of 50% or more could see investors in a leveraged fund targeting the stock virtually wiped out, just like traders of some short-volatility exchange-traded products were during the 2018 market disruption remembered on Wall Street as "volmageddon."

"They're throwing spaghetti at the wall to see what sticks," said Tony Dong, founder and owner of ETF Portfolio Blueprint, about issuers' penchant for leveraged products tethered to increasingly volatile stocks. "This is going to burn some investors."

'Squid Game market'

Lamont lumped in leveraged ETFs with other risky investments that have become popular with the retail crowd, both inside and outside the U.S.

Other examples include zero-day-to-expiration options contracts; so-called memecoins; and extremely speculative "cult" stocks, like the quantum-computing names.

Zero-day-to-expiration, or "0DTE," options are risky contracts that expire at the end of a given trading day. They enable investors to speculate on intraday stock-market swings. Some have likened them to "lottery tickets," due to their low probability of yielding a gain. Memecoins are speculative cryptocurrency tokens that have a reputation for extreme volatility. Quantum-computing stocks, a category including Rigetti, surged in late 2024 but have hit the rocks in 2025.

In a paper published by his employer, Lamont said the popularity of some of these risky products was evidence of the growing allure of what he called the "Squid Game market," a reference to the popular Netflix series.

In the "Squid Game market," as in the "Squid Game" series, investors take enormous risks in the hope of earning a quick cash windfall. Oftentimes, they end up losing money.

"I think it's just gambling, and possibly the people buying these leveraged ETFs and single-stock ETFs think their odds are better than a lottery ticket," Lamont told MarketWatch during a recent phone interview. "They certainly feel like just buying an index fund is not fast enough."

According to several individual investors who spoke with MarketWatch, the chance for a quick profit has been a key selling point that attracted them to LETFs. These earnings could help offset the increasingly stifling cost of living following the worst wave of inflation in four decades, they said.

"What is buying three shares of Nvidia going to get you?" said Wesley Ruede, a store manager who lives in Yonkers, N.Y. "Maybe, if you hold it for a while, you'll make $60. But nobody's happy about that. Nobody cares about that."

"If I go in and see I made $200 today, that's awesome. I feel good about myself," he added.

Ruede started buying shares of the T-Rex 2X Long Nvidia Daily Target ETF NVDX in 2024. He saw an opportunity to catch up on a historic rally in shares of the chip designer, then a Wall Street darling.

Since then, his position in NVDX - the ticker symbol for the 2X Nvidia ETF - has fallen into the red, according to a screenshot of his brokerage account shared with MarketWatch. Another bet using the GraniteShares 2X Long AMD Daily ETF AMDL also hadn't panned out. But Ruede was undeterred; he said he was a believer in the long-term potential of both companies, and had no plans to dump either investment.

"Anybody who doesn't have the stomach for it shouldn't be buying them," he said. "But if you're going to gamble, you might as well gamble on the stock market."

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March 21, 2025 11:43 ET (15:43 GMT)

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