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Wall Street’s Risky ‘Razor Blade’ Trade Is Making a Comeback

Everyday investors are piling into ETFs that make it easy to use leverage or short the market.

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Photographer: Janelle Jones for Bloomberg Businessweek

Ashley Howie sells houses at work, breeds butterflies in her spare time, and takes risks in her portfolio. “My parents are not in the stock market, and they’re terrified for me,” says the 31-year-old real estate agent from Pasadena, Calif. They’d probably be even more scared if they knew everything she was buying.

Howie is part of an army of pandemic-era retail investors powering a boom in leveraged exchange-traded funds and notes, investment vehicles that use financial derivatives to pump up returns. Like a normal ETF, these investments can be traded just like stocks and track the performance of an index. The twist is that they’re designed to deliver two or three times the index’s daily gain or loss, or even to pay the opposite return, allowing buyers to bet against the market. They’re notorious for having gotten caught up in past market meltdowns, and regulators worry that many investors don’t understand their risks. But amid meme-stock madness and crypto chaos, few on Wall Street seem to have noticed their resurgence.