Leveraged and Inverse ETFs Law Firm — Bakhtiari & Harrison

Written and reviewed by

Ryan Bakhtiari, Partner — Bakhtiari & Harrison

Admitted: CA | NY | TX | DC | Multiple Federal Courts · Super Lawyers 2005–2026 · Former PIABA President · Former FINRA NAMC Chairman · Last reviewed: May 2026

Leveraged and inverse ETFs law firm representing investors in claims involving the unsuitable recommendation of leveraged and inverse exchange-traded funds (ETFs) in FINRA arbitration and securities litigation nationwide. Leveraged and inverse ETFs are complex financial products designed for daily trading by sophisticated investors — not long-term holdings by retail investors. When brokers recommend these products to buy-and-hold investors, retirees, or conservative account holders, the resulting losses can be catastrophic. Ryan Bakhtiari served as Chairman of the FINRA National Arbitration and Mediation Committee from 2013 to 2017 and specifically participated in FINRA’s rulemaking on non-traditional ETF sales practice obligations. Investor cases are handled on a contingency fee basis — no recovery, no fee.

What are leveraged and inverse ETFs?

A leveraged ETF seeks to deliver a multiple (2x or 3x) of the daily performance of its underlying index. An inverse ETF seeks to deliver the opposite of the daily performance of its underlying index. A leveraged inverse ETF combines both — delivering a multiple of the inverse daily performance. These products use swaps, futures contracts, and other derivatives to achieve their daily objectives.

The critical word is “daily.” Leveraged and inverse ETFs are designed to achieve their stated multiple on a single trading day. They reset their exposure each day through rebalancing. Over periods longer than a single day — particularly in volatile markets — their actual returns diverge significantly from the implied multiple of the index return, a phenomenon known as volatility decay or beta slippage.

Volatility decay — why long-term holding destroys value

Consider a 2x leveraged ETF tracking an index that falls 10% one day and rises 10% the next. The index is back to approximately its starting value. The leveraged ETF, however, falls 20% and then rises 20% — ending at 96% of its starting value, not 100%. The larger the daily swings, the more severe the decay. In highly volatile markets, a leveraged ETF can lose value even when the underlying index is flat or slightly positive over the same period.

This characteristic makes leveraged and inverse ETFs unsuitable for any investor who intends to hold the position for more than a few days. FINRA issued Regulatory Notice 09-31 specifically to remind broker-dealers of their sales practice obligations for non-traditional ETFs, noting that these products are “typically not suitable for retail investors who plan to hold them for longer than one trading session.”

Common leveraged and inverse ETF misconduct claims

Long-term hold recommendations: recommending that a retail investor hold a leveraged or inverse ETF as a long-term investment — treating it like a regular index fund — is a per se suitability violation given FINRA’s explicit regulatory guidance.
Failure to explain volatility decay: brokers who recommend leveraged ETFs without explaining how volatility decay works over time have failed to provide the material disclosure required for any securities recommendation.
Retirement account recommendations: recommending leveraged or inverse ETFs for retirement accounts — IRA, 401(k), or other long-term investment vehicles — is almost always unsuitable given the products’ daily-reset design.
Conservative investor recommendations: recommending these products to investors whose stated risk tolerance is conservative, moderate, or income-oriented violates basic suitability requirements.

Frequently asked questions — leveraged and inverse ETFs

My broker said a 2x S&P ETF was a safe way to get double the market return — is that accurate?

No. A 2x S&P ETF delivers approximately 2x the daily return of the S&P 500 — not 2x the long-term return. Due to volatility decay, a 2x leveraged ETF held over months or years will typically underperform 2x the index return by a significant margin, and may produce negative returns in volatile markets even when the underlying index is flat. The statement that it provides “double the market return” over time is a material misrepresentation. Leveraged and inverse ETFs law firm

I lost money in an inverse ETF while the market was declining — how is that possible?

Volatility decay. Even in a generally declining market, day-to-day fluctuations cause the inverse ETF to decay relative to the inverse of the cumulative index decline. A market that declines 20% over a period of high volatility may generate losses in a -1x inverse ETF that held over the same period, because the daily reset creates compounding losses from the volatility.

Does Bakhtiari & Harrison handle leveraged ETF claims nationwide?

Yes. The firm represents investors in leveraged and inverse ETF claims in all 50 states. Ryan Bakhtiari is admitted in California, New York, Texas, the District of Columbia, and multiple federal courts.

For a full overview of the firm’s investment product failure practice, visit the Product Failure page.

Contact a leveraged ETF attorney — free consultation

Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

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