The explosive 2x long SK Hynix ETF hides a dangerous leverage trap that is easily overlooked. On July 20, at 9:53 PM, a 36-year-old female director at a Hong Kong firm called the police to report a 26-year-old male trader at her own company.
According to media reports, this trader, without authorization, misappropriated 50 million Hong Kong dollars of the company's funds as margin, used it to secure financing through a related institution, and then purchased a leveraged derivative listed on the Hong Kong Stock Exchange: the CSOP 2x Long SK Hynix ETF. This action has resulted in a massive loss of approximately 150 million Hong Kong dollars.
Over the past six months, the CSOP 2x Long SK Hynix ETF has experienced a dramatic trajectory: its scale ballooned from 5 billion to over 130 billion Hong Kong dollars, its price surged from 17.5 to 193.65 Hong Kong dollars, and then it plummeted over 70% from its peak. The massive loss incurred by the aforementioned trader likely occurred during this period of intense volatility.
To understand how this trade could generate such a colossal loss in such a short time, one must first grasp the unique characteristics of the product itself.
The Fatal Double Leverage
The CSOP 2x Long SK Hynix ETF, officially named the "CSOP SK Hynix Daily Leverage (2x) Product," was listed on the Hong Kong Stock Exchange on October 16, 2025. As a standardized synthetic leveraged ETP, it does not directly hold any underlying SK Hynix shares. Its core operation involves entering into total return swap (Swap) contracts with international investment banks, precisely tracking the twice-daily performance of SK Hynix common stock listed on the Korea Exchange through synthetic replication.
The product's risk profile and investment positioning are explicitly defined in its official prospectus: the investment objective is solely for single-day returns, not designed for multi-day or medium-to-long-term holding. The target investors are exclusively sophisticated, active traders who can monitor their positions daily and are familiar with leveraged derivative rules. It is entirely unsuitable for general investors for long-term allocation.
However, fueled by the 2026 AI storage super-cycle, this leveraged product, intended as a daily trading tool for professional investors, completely deviated from its original design. It evolved into the most volatile, speculative "leveraged trading instrument" globally, exposing the fatal flaw of the daily reset mechanism.
Upon its initial listing in October 2025, the product's asset size was a mere 23 million Hong Kong dollars. By the end of 2025, it had grown to nearly 5 billion Hong Kong dollars. Entering 2026, global demand for AI computing power and HBM high-bandwidth memory exploded. SK Hynix, a key HBM supplier to NVIDIA, experienced an epic surge in performance, with profitability far outpacing the global semiconductor industry.
Riding on extreme fundamentals and market sentiment, the CSOP 2x Long SK Hynix ETF delivered a super-cycle performance that crushed most other assets. According to Wind data, the ETF's price was just 17.5 Hong Kong dollars at the start of 2026, before climbing steadily to an all-time high of 193.65 Hong Kong dollars on June 25. In just seven months, the product's net asset value increased tenfold.
Alongside this surge, the product's scale exploded, going from nearly 5 billion Hong Kong dollars at the end of 2025 to over 130 billion Hong Kong dollars at its peak. This scale not only surpassed the 27-year dominance of the Tracker Fund of Hong Kong to become the largest ETP in Hong Kong but also overtook the US-listed 2x Long Tesla ETF (TSLL) to become the world's largest single-stock leveraged ETP.
The extreme market conditions and massive profit potential attracted a flood of investors, including the 26-year-old trader surnamed Yuan. However, the real danger for such leveraged products often lies not in the upward trend but when investors ignore the underlying mechanics, and risk is instantly amplified upon a market reversal.
Unlike ordinary investors, this trader did not simply buy with his own capital. Instead, he first used margin financing through a related institution to leverage a trading position worth several hundred million Hong Kong dollars, then concentrated all those funds into a heavy bet on the CSOP 2x Long SK Hynix ETF. This means he effectively layered two forms of leverage: one from the external financing, and another from the ETF product itself. This compounding effect is the most dangerous aspect of such trades.
Misunderstood Leveraged ETFs
Many investors only see the upside gains from "2x Long" but overlook the underlying mechanism of daily leverage resetting for leveraged ETFs. This is the most common misunderstanding and often the fatal risk overlooked by the average investor.
In a sustained, one-sided bull market, the previous day's profit is automatically added to the principal, and with the 2x leverage compounding day after day, the long-term returns can far exceed a "static 2x underlying stock return." This was the reality of the recent rally: the underlying SK Hynix stock rose 324% over the period, while the CSOP 2x Long SK Hynix ETF's net asset value surged by 1011%. The extra 688% excess return was the single-sided compounding dividend from the daily reset mechanism.
Once the market shifts from a one-sided rally to a sideways or declining trend, this profit mechanism instantly reverses, becoming a "negative compounding trap" that devours capital. A set of data can clearly illustrate this flaw. From July 9 to July 15, 2026, the underlying SK Hynix stock was essentially flat, edging up 0.29%. Over the same period, the CSOP 2x Long SK Hynix ETF fell 13.25%. The underlying stock barely moved, yet the leveraged ETF suffered a significant loss.
In an extreme downturn, the risk is further amplified, with losses far exceeding the theoretical 2x leverage magnitude. For example, on July 2, SK Hynix stock fell 7.8%. Based on a standard 2x leverage, the theoretical maximum loss for the ETF would be 15.6%. However, the CSOP 2x Long SK Hynix ETF actually fell 27.01% in a single day. The extra 11 percentage points of excess decline resulted from a confluence of extreme factors: forced daily rebalancing, secondary market panic selling, cross-border trading session mismatches, and product premium/discount volatility.
Looking at a longer timeframe makes this even clearer. Wind data shows that from June 23 to July 16, 2026, SK Hynix stock fell by approximately 37%, with a maximum drawdown of 44%. Over the same period, the CSOP 2x Long SK Hynix ETF experienced a drawdown of 70.5%, with a maximum drawdown approaching 75%. While the underlying stock's maximum drawdown was only 40%, the compliantly designed 2x leveraged ETF suffered a drawdown more than double that, exceeding 70%.
This is no longer a simple "2x up or down"; it is a multi-fold crushing effect created by the daily resetting leverage combined with market volatility and panic selling.
An Alternative ETF Survival Path
Without this incident, many mainland Chinese investors might not be familiar with CSOP Asset Management, the Hong Kong ETF issuer that created the blockbuster CSOP 2x Long SK Hynix ETF. Previously, CSOP was not the largest player in the Hong Kong ETF market, but it has a distinct characteristic: a knack for creating "high-beta products."
The traditional competitive logic in the ETF industry is to reduce costs and track indices, like the Hang Seng Index or the S&P 500. However, CSOP chose a different path: identifying the market's hottest investment themes and then providing more extreme trading tools.
When gold prices strengthened, they launched a gold ETF. When the technology sector rallied, they issued tech-themed ETFs. When AI became the central narrative in global capital markets, they quickly introduced leveraged products linked to hot stocks like NVIDIA, Tesla, and SK Hynix. In simple terms, while others provide "investment tools," CSOP provides "sentiment amplifiers." But every financial story has a flip side.
Observing CSOP's product lineup reveals an interesting phenomenon: the success of the CSOP 2x Long SK Hynix ETF is difficult to replicate. Currently, CSOP has a range of other leveraged products covering popular stocks like Samsung Electronics, NVIDIA, Tesla, Coinbase, and MicroStrategy. However, the scale of these products is not on the same level as the CSOP 2x Long SK Hynix ETF.
The CSOP 2x Long SK Hynix ETF became a super blockbuster not because leveraged ETFs were suddenly accepted by all investors, but because it perfectly aligned with three era-defining variables: AI, Chips, and Leverage. The confluence of these three forces created a rare market event. The problem is that when markets rise, leveraged products look like wealth machines. But when the trend reverses, they become risk amplifiers.
Recently, CSOP announced that, following a revised circular from the Securities and Futures Commission (SFC) last month, several of its leveraged and inverse products will adopt a flexible leverage structure from August 3, 2026. The leverage ratio will be adjusted daily based on market conditions, but will not exceed 2x or -2x. The product names will also change accordingly; for example, "CSOP Berkshire Daily Leverage (2x) Product" will be renamed to "CSOP Berkshire Daily Leverage up to (2x) Product."
The Real Test is Just Beginning
Riding the success of the CSOP 2x Long SK Hynix ETF, CSOP Asset Management has enjoyed its moment in the spotlight. On July 16, at the "2026 Sina Global Capital Summit," CSOP CEO Ding Chen stated that the company's global-first 2x leverage product on SK Hynix had, within just eight months of listing, reached a scale of 130 billion Hong Kong dollars by June, making it the world's largest single-stock leveraged product. This marked the first time a Hong Kong-listed product had achieved global dominance in this category, using a non-Hong Kong underlying asset.
In a sense, however, CSOP was not the creator of this wealth frenzy. It simply seized a rare window of opportunity during an era when the AI industrial revolution was sweeping the globe, capital was frantically flowing into the computing power supply chain, and investors were seeking tools with higher elasticity. Driven by market bullish sentiment, a single ETF was transformed from an ordinary financial product into a star of the capital markets.
But market sentiment does not stay high forever. For CSOP, the real test may be just beginning: Can a company that grew rapidly by capturing a fashionable trend prove its value through product innovation, asset management capabilities, and long-term competitiveness once the trend fades? After all, catching one wave can create a company's moment of glory, but navigating through cycles determines a company's ultimate height.
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