Retail Traders Increasingly Use Leveraged ETFs for Contrarian Bets During Market Volatility

Retail participation in leveraged exchange-traded funds (ETFs) and notes (ETNs) has grown significantly, with these instruments now serving as primary tools for active traders to navigate extreme market volatility. As of November 2025, total investments in these products reached $160.5 billion, representing approximately 8% of all trading activity on U.S. stock exchanges. The vast majority of this activity—roughly 90% of turnover—is driven by retail traders. These products allow individual investors to access institutional-style strategies, enabling them to magnify short-term perspectives through both bullish and bearish funds to capitalize on rapidly changing market conditions. Historical data shows varying retail responses to crises. During the 2020 COVID-19 crash, turnover in leveraged funds quadrupled, with traders shifting from 3X leverage to lower-leverage products as the selloff deepened. In contrast, the 2022 inflation crisis saw retail traders fighting the downward trend with long positions, often lagging the market bottom by several weeks before flipping their sentiment to bullish. The 2025 'Liberation Day' tariff event highlighted a growing trend of high-conviction contrarianism. Despite the S&P 500 dropping 19% over a period of 35 trading days, retail traders continued buying long funds, only shifting to short positions on April 9, which coincided with a significant market rally. The proliferation of single-stock leveraged funds since mid-2022 has expanded the toolkit for active traders, allowing for more granular expressions of market views during periods of high volatility.