Investors Are Learning a Hard Lesson About the Dangers of Using Leverage
During the first half of 2026, the Direxion Daily Semiconductor Bull 3x ETF (SOXL +1.74%) was up a staggering 535%. It was a choppy ride, as to be expected with any ETF (exchange-traded fund) that uses leverage. Still, the power of the artificial intelligence (AI) trade continued to generate huge returns for investors.
Leveraged ETFs give investors the ability to magnify their daily exposure to an asset — be it a stock, a sector, or a country — through the use of derivatives contracts. Most will double or triple the daily performance either up or down. These can be especially dangerous products if you’re on the wrong side of a trade. It’s not unusual to see losses of 20% to 30% or more over the course of several days if there’s a negative catalyst.
Leveraged semiconductor ETFs have become very popular with the AI rally occurring in the background.
Direxion Shares ETF Trust – Direxion Daily Semiconductor Bull 3x Shares
Today’s Change
(1.74%) $1.99
Current Price
$116.71
Key Data Points
AUM
$19B
Dividend Yield
0.01%
Expense Ratio
0.91%
Top Holdings
AMD
1.70%
NVDA
1.67%
MU
1.63%
But July has been an entirely different story. Investors have rotated out of tech stocks again as concerns about AI development overspending are growing. Tech was the worst-performing market sector in July, and previously red-hot semiconductor stocks have turned ice cold.
The Direxion Daily Semiconductor Bull 3x ETF is currently seeing one of the sharpest drawdowns ever in this sector. Right now, it’s down more than 60% in just over one month.
There are two things that investors should know about any leveraged ETF:
- Retail investors should be using leveraged products very little, if at all. They’re sophisticated products that can carry significant downside risks, as many investors are finding out now.
- Leveraged ETFs are designed to be held for no more than a couple of days. They’re trading vehicles more than anything else and shouldn’t be held for the long term.
As too many people are probably finding out at the moment, leveraged ETFs are dangerous and should be treated as such. They look incredibly enticing during bull markets when everything is increasing in value. But when the market reverses, losses can pile up incredibly quickly.
David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
