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JPMorgan’s Americas equities derivatives team revealed that large-scale selling of leveraged exchange-traded funds (ETFs) played a major role in Friday’s U.S. stock market plunge. According to the report, roughly $26 billion worth of leveraged ETF selling at the market’s close intensified losses after U.S. President Donald Trump threatened steep new tariffs on China, triggering panic across markets.
This heavy selling forced options dealers to hedge their positions, amplifying downward pressure. The sharp decline came after a surge in investor interest in leveraged ETFs, which allow traders to magnify gains—or losses—on volatile stocks such as Tesla.
Markets bounced back on Monday as Trump softened his stance on trade, but the rally did little to ease investor nerves. Gold prices surged to record highs, reflecting persistent uncertainty.
Tom Bruni of StockTwits noted that leveraged ETFs now make up 33% of new ETF launches, though they represent only 1% of the U.S. ETF industry’s $12 trillion in assets. Despite their small market share, these products are increasingly influencing market volatility.
Meanwhile, ETF issuers are racing to launch new products offering higher leverage. The SEC currently limits single-stock leveraged ETFs to 2x exposure, but firms like GraniteShares are seeking approval for 3x leveraged products on dozens of stocks. GraniteShares CEO Will Rhind said the move reflects investor demand for more aggressive trading tools.
However, these products carry significant risk. GraniteShares recently shut down a 3x inverse ETF tied to AMD after the stock surged 38% in a single day, wiping out the fund’s $3 million value. Rhind defended the outcome, saying, “The product did what it was supposed to do.”
As leveraged ETFs expand, analysts warn that their growing influence could magnify future market swings, especially during periods of uncertainty.
