By Lewis Braham
If you want proof that America is becoming one big casino, look no further than the plethora of leveraged single-stock exchange-traded funds launched this year.
Most of the over 200 leveraged equity ETFs issued this year -- which use derivatives to double daily returns -- are for a single company, when in the past they leveraged diversified benchmarks like the Nasdaq 100. Nor are these leveraging just well-established blue-chip names, but often younger, more volatile public issues such as electric-vehicle maker Lucid Group and quantum computing company D-Wave Quantum. Both companies went public in the past five years.
Fortunes have been made or lost in some of these poker-chip ETFs practically overnight. Of the ones that have existed since the year began, Direxion Daily MU Bull 2X Shares, which doubles the daily return of semiconductor company Micron Technology, is up 438% year to date, while Defiance Daily Target 2X Long MSTR, which does the same for Bitcoin treasury company Strategy, is down 83%. To recover from an 83% loss requires a 488% gain.
In fact, the ubiquity of such ETFs in 2025 exactly parallels the current onslaught of online casino ads featuring such celebrities as Jamie Foxx, Kevin Hart, and Jon Hamm.
"There is a segment of the marketplace that looks at this as almost like gambling," says Paul Marino, chief revenue officer at Themes ETFs, which manages 48 and counting Leverage Shares single-stock ETFs -- almost all of which launched in 2025. "I hate to say that, because when you're investing, we're still capitalizing companies so that they can grow, right?" Themes' most popular -- Leverage Shares 2X Long UNH Daily for health insurer UnitedHealth Group -- has benefited from Warren Buffett's interest in the stock.
Yet Marino acknowledges that the "line between investing and betting has been blurred. You could see that in every aspect of life," he says, pointing to the National Basketball Association, Major League Baseball, and Ultimate Fighting Championship bouts. "Sports and betting has been blurred. We've got Polymarket out there making predictive markets that people can actually take bets on."
Polymarket allows online gamblers to wager on who will win elections, Oscars, and Nobel Prizes as well as whether " Jesus will return in 2025," if Mark Zuckerberg will get divorced, and whether the U.S. will "confirm that aliens exist." If such wagers sound stupid, consider that the Intercontinental Exchange, the parent company of the New York Stock Exchange, just purchased 25% of Polymarket in October, with a $2 billion strategic investment, calling such gambling " decentralized finance."
Themes alone will issue more than 50 ETFs this year, Marino estimates. "One of the guys made a joke like, 'Should we send this stuff to the Guinness Book of World Records to see who's launched the most ETFs in a single year?' " he says. "But the demand is there. The traders are flocking to these ETFs, and we don't make any recommendations. We don't tell people what to do. All we are doing as a distributor is providing tools that traders want, and then from there, they can make their decisions."
This gamification of investing/life became popular during the Covid era in 2020, when people were stuck at home and started trading on brokers like Robinhood, says Daniel Sotiroff, a Morningstar analyst covering ETFs: "We've turned a lot of elements of the stock market into a game now. We've even seen it in certain trading apps where in the Covid era, when you made a trade, you'd see confetti splash across the screen." He advises that investors consider these ETFs only for play money they are prepared to lose, just like at a casino.
The products are "absolutely aimed at the naive investor who doesn't know what they're getting into," Sotiroff says.
Single-stock ETF managers make no bones about the risks, emphasizing that they aren't meant for long-term investors but rather active traders. But who are those traders? A sophisticated institutional investor could use derivatives such as futures or options or a margin account to acquire leverage.
The first leveraged single-stock ETFs opened in 2022 after regulatory shifts allowed them. Today there are about 250 2x ones and various other single-stock vehicles offering to short a single stock or to generate income from writing options on one.
Depending on the account size, the current margin rates to borrow stock for leverage at a trader-oriented broker like Interactive Brokers range from 4.4% to 5.4%, while most leveraged single-stock ETFs carry expense ratios between 0.75% and 1.5%. But those ETF fees conceal the underlying cost of leveraging, as such costs are embedded in the price of derivatives such as futures, options, and swaps.
Convenience is one reason for the ETFs' popularity. "I think if you're a sophisticated trader, you know there are certain points in time when [derivatives such as futures and options] look attractive, and there are other times when it's more straightforward and simple to execute your perspective with an ETF," says Mo Sparks, Direxion's chief product officer. While Direxion has long managed leveraged S&P 500 and Nasdaq 100 index ETFs, Sparks says the use case for single-stock ones often revolves around an individual company's earnings season. "That's when we see elevated activity across all of our range" of single-stock ETFs, he says.
Although regulators previously drew the line at 2X single-stock ETFs, there are regulatory filings now to launch 3X ones that would triple daily returns from Leverage Shares and Direxion. In a more lenient regulatory environment, they will likely be approved. Meanwhile, the 2X production line keeps rolling.
"I think you're getting a different segment of people coming into the market who weren't there before, and they're not looking at [ETFs] strictly as investments," Marino says. "They're like, 'How can I make money on this? Get in, get out, and I'm not worried about the long term.' They're like, 'Hey, where can I get the quick dopamine hit?' "
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(END) Dow Jones Newswires
December 12, 2025 21:31 ET (02:31 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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