Paradigm’s $50,000 Top Trader Challenge is heating up!

Leveraged ETFs are making quite the showing.

As I type:

• Tradr 2X Long CRDO Daily ETF (CRDU) is in 5th place.

• GraniteShares 2x Long NBIS Daily ETF (NBIL) is in 9th.

• Leverage Shares 2X Long NBIS Daily ETF (NBIG) is in 10th.

I picked one of these ETFs myself – the Direxion Daily META Bull 2X ETF (METU).

If you’re unfamiliar, these 2X single-stock ETFs deliver twice the underlying stock’s daily return.

For example, if META jumps 5% in a single day, METU will rise 10% – exactly double.

There are plenty of these funds now that cover stocks like Meta, Apple, Tesla, Amazon, Coinbase, and many more.

For a challenge like this, they actually make a lot of sense.

You don’t need to put real money at risk.

And if you catch a high-flying stock during a strong month, leveraged exposure can compound gains quickly.

But outside of a controlled setting like this, you need to be careful.

Because these products have quietly been burning a lot of investors.

So consider today’s article your warning.

Here’s the problem most investors miss: The returns reset daily.

This one detail changes everything.

A few sharp moves – especially losses – can destroy returns over time.

Here’s a simple example:

Say a stock starts at $100.

• Day 1: +5% → $105

• Day 2: +5% → $110.25

• Day 3: -15% → $93.71

Now apply 2X leverage:

• Day 1: +10% → $110

• Day 2: +10% → $121

• Day 3: -30% → $84.70

After just three days, the stock is down 6% but the leveraged ETF is down over 15%.

That’s more than 2X the drawdown, all because of one bad day.

Stretch that out over weeks or months and the damage can compound quickly.

Here are a few real-world examples.

1. Nvidia (NVDA) vs. NVDL

While Nvidia has been one of the biggest winners of the AI boom, its leveraged counterpart – GraniteShares 2x Long NVDA Daily ETF (NVDL) – offers a clear lesson in how volatility can quickly erode returns.

• The Scenario: Throughout late 2025 and early 2026, Nvidia was flat although it experienced several "whipsaw" months – dropping 15% on earnings caution and then rallying on new chip announcements.

• The Returns: NVDA returned 0% after a volatile few months. NVDL, however, was down 10% over that same time.

• Why?: When a stock falls and then recovers, a leveraged ETF falls more on the way down and then compounds gains from a lower base on the way back up. So even though the stock returns to breakeven, the ETF doesn’t.

2. Energy (XLE) vs. ERX

The 2020 oil crash is the ultimate warning on how a "jagged" path can lead to a total wipeout for leveraged funds.

• The Scenario: In early 2020, pandemic lockdowns caused energy stocks (XLE) to crater. By the end of the year, the sector had started a massive rally, but the path was filled with extreme daily swings and a brief period where oil prices actually went negative.

• The Returns: By the end of 2020, the XLE (non-leveraged) was down about 37%. The 2x leveraged ERX plummeted over 92%.

• Why?: The initial crash was so violent that the ETF's capital was nearly depleted. By the time energy stocks started to bounce back, the ETF had fallen so far that even a 100% gain wasn't enough to move the needle.

3. Strategy (MSTR) vs. 3x Leveraged ETF

Strategy (formerly MicroStrategy) might be the best example of all.

• The Scenario: Throughout 2024, Strategy surged higher alongside Bitcoin, but the ride was anything but smooth. The stock experienced multiple sharp drawdowns of 20–30% before bouncing back to new highs.

• The Returns: Strategy gained over 100% during this period. The 3x leveraged ETF, however, fell more than 80%.

• Why?: Large drawdowns are devastating when leverage is involved. A 30% drop becomes a 90% loss in a 3x product. And once you’re down that much, even massive rebounds aren’t enough to recover.

By now, the pattern is clear.

Leveraged ETFs don’t just amplify returns.

They amplify volatility, and over time that volatility eats away at performance.

In a short-term setup like Paradigm’s $50,000 Top Trader Challenge, they can work.

But in a real portfolio, the odds aren’t in your favor.

I recommend you stay far away from these investments.