Here's What Direxion's Triple-Leveraged ETFs Are All About

A few traders are using leveraged and inverse ETFs to find even more volatility after a turbulent few years for stocks and bonds.

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The Direxion Daily S&P 500 Bear 3x Shares ETF (SPXS), for instance, has averaged more than 28 million shares in daily trades this year, despite a rally in the broader market. Trading volume has been heavier for SOXS and SOXL, the firm's short and long 3x semiconductor funds.

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As a multiplier for its underlying index, leveraged ETFs increase their return. As a result, when the index rises, performance is outsized, but when it falls, losses are greatly magnified. As a result, inverse ETFs aim to make money when the underlying index declines, by using derivatives to achieve opposite returns.

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According to Laura Morrison, Direxion's chief revenue officer, the funds' success shows that some traders are willing to make large one-day bets on markets or sectors.

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There are no long-term investors we are looking for. She told Trade Algo' John Liu at the Exchange ETF Conference that they are looking for daily traders who want to place a position based on their opinions of the market's direction.

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According to Morrison, both retail investors and institutional investors use Direxion's leveraged funds, although retail investors probably make up the majority of users.

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Several regulators and financial advisors view leveraged funds with skepticism. Despite continuing to push back, Morrison said the Securities and Exchange Commission has not approved further triple-leveraged fund launches.

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It is partly the "daily" part of the names of the funds that causes concern. A longer period of time could cause the performance of leveraged funds to diverge from what they are advertised as.

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In order for you to make informed decisions on a daily basis, you need to trade them daily even if you don't trade them every day.

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She said investors are, however, understanding the concept and appropriately using the funds.

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“Investors are educated before they can buy one of these ETFs, which is a tremendous amount of effort,” she said.