The Impact of Leveraged ETFs on Wall Street

The Role of Leveraged ETFs on Wall Street

The financial hub of the United States, Wall Street, attracted attention with its sharp sales last Friday. According to JPMorgan analysts, this volatility was triggered by U.S. President Donald Trump's threats of tariffs on China. However, one of the factors that deepened this negative sentiment was the leveraged exchange-traded fund (ETF) transactions, which reached a value of approximately $26 billion.

Forced Sales in Leveraged ETFs

JPMorgan's U.S. equity derivatives team reported that these large-scale ETF transactions resulted in forced sales and urged option traders to quickly hedge their positions. This situation exacerbated the decline in the stock market by the end of the day, leading to further losses for investors.

Increased Volatility in Markets

Analysts warn that the rapidly increasing demand for leveraged ETFs could create excessive volatility in the markets in the upcoming period. These funds aim to multiply stock movements by several times on a daily basis, promoting the use of derivatives such as swaps and options. Currently, there are approximately 900 leveraged ETFs in the markets.

Market Share of Leveraged ETFs

Interestingly, while leveraged ETFs make up only 1 percent of total ETF assets, they represent one-third of newly launched ETF issuances. This situation highlights the significant role they play in the market.