(Bloomberg)-The meme-stock era may be over, but day trading in a corner of the stock market is entering pandemic records.
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Transaction volumes in a controversial race of leveraged ETFs hit record highs this week as retail and institutional investors alike surfed intense U.S. equity turbulence. The number of shares changing hands in the $ 17 billion world of inverse exchange-traded funds hit seven times the average of the past five years on Wednesday, according to data compiled by Bloomberg.
Investors flocked to these derivatives-powered products in this year’s market turmoil to bet on declines and hedge everything from tech stocks to small amounts. In value, approximately $ 15 billion of inverse ETPs were traded on Wednesday, or five times the average.
Retail traders have become the main drivers of activity, according to strategists at JPMorgan Chase & Co. The ProShares UltraPro Short QQQ ETF (ticker SQQQ)-which offers three times the inverse return of the Nasdaq 100-attracted a record $ 592 million from individual investors in the five days to Tuesday, they said.
The Direxion Daily Small Cap Bear 3X Shares ETF (TZA) and the Direxion Daily S&P 500 Bear 3X Shares ETF (SPXS)-which aim to treble the inverse performance of the Russell 2000 and the S&P 500, respectively-also saw of the highest net retail-buying since the start of the pandemic, JPMorgan said.
“The sudden increase in the opposite volume of ETFs shows that traders are in a hurry to hedge their portfolios or think about further downside,” said Jason Goepfert at Sundial Capital Research. “When this activity rises compared to total volume, it suggests that sentiment is too far on the bearish side, which usually corrects with at least one short -term rally in stocks.”
Inverse and leveraged ETFs have been at the heart of meltdowns in markets for stock volatility, oil, gas and more in recent years, leading to numerous product closures and periods of lower investor interest. Wall Street regulators said they are thinking of new rules to better protect investors from such “complex” investments. Their structure means they can deliver quick losses as well as large profits, and most are designed to be handled in the short term.
Assets and trading volume have grown over the past year as traders seek new advantages in fast -moving markets. Global assets in vehicles nearly doubled from the end of 2018 to $ 128 billion last year.
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In the U.S., inflows of $ 31.6 billion helped drive a 55% increase in assets in 2021 to $ 88.6 billion. They currently boast about $ 76.3 billion, the data shows. But while reverse ETFs are a favorite tool among retail traders, investors with big money can also play a role in record high trading volumes.
“While yes, some of these are‘ retail punters, ’larger funds are widely used by hedge funds and institutional traders to make direct bets in the short term,” said Dave Nadig, chief investment officer. of data provider ETF Trends.
Proponents argue that ETFs can be a useful trading tool for those who understand risk. They are easy to access, and can be a relatively inexpensive way to hedge a portfolio especially in current market conditions.
“As implied volatility has increased, pushing up the value of options, retail investors may now prefer reverse ETFs as a cheaper alternative,” said JPMorgan strategist Peng Cheng through of email.
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