In an unprecedented downturn for the investment landscape, investors lost a staggering $25.7 billion in leveraged exchange-traded funds (ETFs) late last week. This significant meltdown marks the largest recorded loss for these high-risk funds, which have attracted a considerable influx of capital from retail traders eager to capitalize on quick returns.

These leveraged funds, designed to amplify the daily performance of individual stocks or indices by as much as five times, experienced a drastic decline, shedding nearly a quarter of their total value over the course of just two days, Thursday and Friday. The primary catalysts for this downturn were the escalating trade tensions initiated by former President Donald Trump and the subsequent unraveling of financial markets, as reported by financial analytics firm FactSet.

This recent financial fiasco has shattered previous records for ETF losses. During the tumultuous days of the Covid-19 market crash in March 2020, leveraged ETFs suffered losses of $9.1 billion and $5.6 billion on two separate occasions. Additionally, there was the notorious “Volmageddon” event of 2018, which saw significant losses for short volatility ETFs triggered by a sudden spike in market volatility.

The downturn in the stock markets was exacerbated over three trading days, beginning on Thursday and continuing through Monday, as a wave of new tariffs against numerous trading partners of the United States was set to take effect on the following Wednesday. These tariffs were on top of a universal 10 percent tariff announced during Trump’s so-called “liberation day.”

The staggering financial losses highlight the inherent risks that retail investors face in the rapidly expanding leveraged ETF sector, which has surged to over 650 different funds globally since its inception in 2006. In particular, Elisabeth Kashner, the director of global fund analytics at FactSet, issued a warning about the dangers of these investment products. “These products are very sharp knives,” she remarked, adding, “They are to be used for very specific purposes, and the people that use them have to know what they are doing.”

The biggest percentage loss among these funds was recorded by the Ireland-based Leverage Shares 4x Long Semiconductors ETP, which plummeted by an astonishing 59.1 percent over the two-day period. Additionally, three other ETFs—5x Long Magnificent 7, 3x Boeing, and 3x Arm—each recorded declines exceeding 50 percent.

In terms of dollar losses, the ProShares UltraPro QQQ ETF, a $20 billion fund that tracks the technology-heavy Nasdaq index, was the most significant casualty, suffering a loss of $6.3 billion. “It’s really all about semiconductors and tech, and the biggest percentage losses are in single stock ETFs,” Kashner added. “Some did a magnificent job of losing money.”

While the United States remains the largest market for leveraged ETFs, with leverage capped at three times, this limitation serves to mitigate potential losses compared to those seen in more aggressive funds. Importantly, there is currently no indication that any of the leveraged ETFs failed to operate as intended.

Kenneth Lamont, a principal researcher at Morningstar, pointed out that retail investors are particularly vulnerable to dramatic losses associated with such high-risk investment products. “They don’t have all the advantages of a big institution, and the chances are that they don’t possess an edge,” he explained. “Therefore, having a product that allows them to triple down on their bet may not be the wisest choice.”