What SK Hynix’s U.S. Debut Reveals About Wall Street’s Leveraged ETF Craze

When South Korean memory-chip maker SK Hynix began trading on Nasdaq on July 10, exchange-traded fund (ETF) issuers such as ProShares, GraniteShares and Direxion quickly launched leveraged and inverse funds allowing investors to bet on—or against—twice the stock's daily price movement.

The speed of those filings underlines how ETFs, once known as vehicles for conservative, long-term passive, have been repurposed as short-term speculative instruments characterized by leverage and volatility. SK Hynix is hardly unique. As AI-related stocks have surged, ETF issuers have raced to package many of the market's hottest names into leveraged products aimed at short-term traders.

"Clients in this realm want volatility," Matt Lamb, a portfolio consultant at GraniteShares, told MarketWatch.

Who are the clients? Individual retail investors account for nearly 90% of trading in leveraged single-stock ETFs, according to research from Direxion, Vanda Research and The Compound Insights cited by Reuters.

The ETF wrapper's simplicity and convenience democratized sophisticated investment strategies. For long-term investors, ETFs make it easy to create a diversified portfolio, pay low fees and enjoy relative liquidity. For short-term investors, ETFs make it easy to ride the momentum of stocks without navigating margin requirements or complex options strategies.

No wonder then that ETFs have grown to become a $12 trillion industry, according to the U.S. Securities and Exchange Commission (SEC).

The demand for leveraged ETFs in particular has surged in recent years, driven by retail investors looking to cash in on the AI boom. Approximately 31% of new U.S. ETF launches during the first half of 2026 are leveraged and inverse ETFs, up from roughly 22% a year earlier, according to Morningstar. The U.S. now has almost 700 leveraged ETFs with $200 billion of assets under management, all but 80 of them launched in the last two years and 400 of them focused on a single stock. They "account for upwards of 15%-20% of [trading volume] volume on a given day" despite making up just 2% of assets in the ETF industry, chief ETF strategist at Baird Strategas Todd Sohn, wrote in a recent research note.

While the appeal of doubling daily gains is undeniable, the structural mechanics of leveraged ETFs pose severe, often misunderstood, dangers for individual investors in the form of volatility drag. In a smooth, constantly upward-trending market, leverage works like a charm but in a choppy or sideways market, the fund's value erodes because exposure is reset daily. The performance of the ProShares Ultra SpaceX ETF is a perfect example of this pitfall. Designed to produce twice the daily return of SpaceX, the fund collapsed 48% over a multi-week span where the underlying SpaceX stock fell by only 10%. Unless an investor is actively day-trading and monitoring positions hour by hour, holding onto these instruments can wipe out their capital quickly.

Besides individual losses, the explosion of leveraged ETFs could intensify corrections and volatility. To limit any potential damage, the SEC has repeatedly blocked attempts to launch leveraged ETFs beyond the current 2x threshold, but is soliciting public comments on novel ETF investment strategies. ETF Action founding partner Mike Akins told CNBC that leveraged ETFs "getting a little carried away" and that sometimes they are "not great for the overall ecosystem of the market."

South Korea's top regulator, Lee Chan-jin, publicly regretted approving single-stock ETFs after a dozen leveraged ETFs tracking Samsung Electronics Co. and SK Hynix Inc. lost half their value in late May. The largest of these was down 45% since its debut and down over 60% from its June peak, according to Bloomberg data. Goldman Sachs estimates that a mere 5% market swing could trigger $4.7 billion in rebalancing flows, or roughly 13% of the South Korean stock market's normal trading day volume.