By Matt Connor
How Leveraged ETFs Work (and Why They Decay)
How 3x leveraged ETFs like SOXL actually work, why they can beat or lag their multiple over time, and why inverse funds such as SOXS keep reverse-splitting.
A leveraged ETF is a fund built to return a fixed multiple of an index's move over a single trading day: a 3x fund like SOXL targets three times the daily move of the semiconductor index, a 2x fund like USD targets double, and an inverse fund like SOXS targets the opposite. The word doing the quiet work is daily. Over one session the multiple holds closely; over weeks and months the fund resets every day, and where it lands depends on the path the index took to get there, not just the start and end points.
The cleanest way to see both halves is a real semiconductor selloff. On Monday, July 13, 2026, chip stocks fell hard, and the family of funds that tracks them separated exactly the way the design says they should.
How a leveraged ETF works on a single day
The panel below takes four funds tied to the same semiconductor index and marks each one's move from the prior Friday's close to the Monday close: the plain index ETF SOXX, the 2x USD, the 3x SOXL, and the inverse 3x SOXS.
The exact SQL behind every number
WITH d AS (
SELECT ticker, toDate(toTimeZone(window_start, 'America/New_York')) AS et_date,
close, window_start
FROM global_markets.delayed_stocks_minute_aggs
WHERE ticker IN ('SOXX', 'SOXL', 'SOXS', 'USD')
AND window_start >= '2026-07-10 12:00:00' AND window_start < '2026-07-14 00:00:00'
AND (toHour(toTimeZone(window_start, 'America/New_York')) * 60
+ toMinute(toTimeZone(window_start, 'America/New_York'))) BETWEEN 570 AND 959
)
SELECT
multiIf(ticker = 'SOXX', 'SOXX (1x index)',
ticker = 'USD', 'USD (+2x)',
ticker = 'SOXL', 'SOXL (+3x)',
ticker = 'SOXS', 'SOXS (-3x)', ticker) AS fund,
round((argMaxIf(close, window_start, et_date = toDate('2026-07-13'))
/ argMaxIf(close, window_start, et_date = toDate('2026-07-10')) - 1) * 100, 2) AS jul13_return_pct
FROM d
GROUP BY ticker
ORDER BY jul13_return_pct DESCSOXX, the unleveraged index fund, closed -4.88% on the day. The 3x SOXL closed -13.98%, close to three times as far, and the 2x USD closed -8.23%, close to double. The inverse SOXS moved the other way and finished +14.33%, roughly three times the index's decline in the opposite direction. On a single day the leverage does what it advertises, minus small frictions from fees and the cost of the swaps the fund holds.
That one-day faithfulness is the entire promise. A leveraged ETF is a bet on tomorrow's move, rebuilt every morning.
Why leveraged ETFs decay (or amplify) over time
The fund re-strikes its exposure every day, and multi-day returns compound off a base that shifts with each reset. The result parts ways with a simple multiple of the index. In a steady one-way climb the daily reset works in the holder's favor: each up day levers a slightly larger base than the day before. In a choppy market the same reset bleeds value, since a gain and an equal-sized loss leave a levered fund lower than where it started. This path dependence is what people mean by leveraged-ETF decay.
Semiconductors spent the first half of 2026 climbing, so this stretch shows the friendly side of the reset. The panel tracks $100 placed in SOXX against $100 in the 3x SOXL from the first session of the year through July 13.
The exact SQL behind every number
WITH base AS (
SELECT ticker,
toDate(toTimeZone(window_start, 'America/New_York')) AS d,
argMax(close, window_start) AS c
FROM global_markets.delayed_stocks_minute_aggs
WHERE ticker IN ('SOXX', 'SOXL')
AND window_start >= '2026-01-02 00:00:00' AND window_start < '2026-07-14 00:00:00'
AND (toHour(toTimeZone(window_start, 'America/New_York')) * 60
+ toMinute(toTimeZone(window_start, 'America/New_York'))) BETWEEN 570 AND 959
GROUP BY ticker, d
),
f AS (SELECT ticker, argMin(c, d) AS c0 FROM base GROUP BY ticker)
SELECT base.d AS date,
round(maxIf(base.c / f.c0 * 100, base.ticker = 'SOXX'), 1) AS soxx_growth,
round(maxIf(base.c / f.c0 * 100, base.ticker = 'SOXL'), 1) AS soxl_growth
FROM base INNER JOIN f ON base.ticker = f.ticker
GROUP BY base.d
ORDER BY base.dBoth lines begin at $100. By July 13 the 1x SOXX had grown to $176.2, a gain of about 176.2 minus 100 points. The 3x SOXL reached $349.6: more than three times SOXX's gain, not less. In a trending market the daily reset compounds upward, and a 3x fund can beat a static triple.
The catch is that the same mechanism reverses in a sideways or falling market. A stylized example makes the asymmetry concrete: an index that gains 10% one day and loses 10% the next ends at 99% of where it began, while a 3x fund on the same two days gains 30% then loses 30% and ends at about 91%. The index is down 1%; the 3x fund is down 9%, far worse than three times the index's 1%. Hold a leveraged fund through enough back-and-forth and the drag accumulates. Which side of this you land on depends entirely on the path.
Why inverse ETFs like SOXS keep reverse-splitting
The inverse fund is the cautionary case. When the underlying index trends up, a -3x fund grinds relentlessly toward zero, and its share price falls with it. To keep the quoted price off the floor, the sponsor periodically runs a reverse stock split, folding many low-priced shares into one higher-priced share. The split changes nothing about a holder's dollar value; the need for one, over and over, is the decay made visible.
The exact SQL behind every number
SELECT
toString(execution_date) AS date,
concat('1-for-', toString(split_from)) AS ratio,
round(exp(sum(ln(split_from)) OVER (ORDER BY execution_date)), 0) AS cumulative_factor
FROM global_markets.stocks_splits
WHERE ticker = 'SOXS'
AND adjustment_type = 'reverse_split'
AND execution_date >= '2020-01-01'
ORDER BY execution_dateSOXS has executed 5 reverse splits since 2020, the most recent on 2026-07-15. Chained together they compound to a 240000-to-one consolidation: one SOXS share today stands in the place of 240000 shares from 2020. No inverse fund needs that many reverse splits unless it is losing value on a grand scale between them. It is the same story the semiconductor names told on the way up, read through the mirror.
Are leveraged ETFs meant to be held long term?
The prospectuses answer this directly: these funds state a daily objective, and their issuers describe them as short-term tactical tools rather than buy-and-hold positions. Over a day, the multiple is reliable. Over a quarter, the outcome is a function of volatility and path, and it can land well above or well below the naive multiple, as SOXL and SOXS did over the same six months in opposite directions. The July 13 tape and the year-to-date lines are two views of one fact: leverage multiplies the daily move, and time multiplies whatever the daily reset does with it. Checking a fund's relative volume and its own history tells you more than the headline multiple alone.
FAQ
Do leveraged ETFs reset every day?
Yes. A leveraged or inverse ETF rebalances its exposure at the end of each trading session to restore its stated multiple against the next day's move. That daily reset is why the fund tracks its multiple closely over one day and can drift far from it over many days.
Why did my leveraged ETF lose money when the index barely moved?
Path, not endpoints. The fund resets daily, and an up-and-down stretch that leaves the index roughly flat still compounds losses in a leveraged fund. A day of +10% followed by a day of -10% leaves a 3x fund near 91 cents on the dollar while the index sits near 99. The choppier the ride, the larger the drag.
What is SOXL?
SOXL is a 3x leveraged ETF that seeks three times the daily return of a semiconductor index. On July 13, 2026, when the index fund SOXX fell -4.88%, SOXL fell -13.98%, close to three times as far. Its inverse counterpart is SOXS, which targets -3x the same index.
Why does SOXS keep doing reverse splits?
SOXS targets -3x a semiconductor index that has trended higher, so the fund's price grinds down over time. It has run 5 reverse splits since 2020, compounding to a 240000-to-one consolidation, purely to keep the share price above the low-single-digit range. The reverse split itself is value-neutral for holders.
Can a leveraged ETF beat its multiple?
Over a single day, no: it targets exactly its multiple. Over a longer trending window, yes. From January 2 to July 13, 2026, SOXX gained enough to turn $100 into $176.2, while the 3x SOXL turned $100 into $349.6, more than a static triple of SOXX's gain. Over a steady uptrend the daily reset compounds upward.
Every panel above is a stored, inspectable query. Open the SQL under any chart to audit it, or ask the same question of any leveraged or inverse ETF on the Strasmore terminal.