Direxion will execute a reverse split of its leveraged and inverse financial ETFs on July 9, after the two funds’ share prices fell so much that they became overly costly for investors to trade.

The Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS) will execute a 1-for-5 reverse split, meaning shareholders will receive one share of the new FAS for every five shares they own today. For the Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ), the ratio will be 1-for-10.

Investors won’t lose any money on the deal of course, because each share will become more valuable. Based on yesterday’s closing prices, the reverse splits will raise the per-share cost of FAZ from $5.12/share to $51.20/share and boost the price of FAS from $8.34/share to $41.70/share.

The reason for the reverse split is simple: With the share price so low, FAZ and FAS had become uneconomic to trade.

Both funds trade at the minimum possible spread of one penny per share, which means investors lose 2 cents on a round-trip trade due to spreads. That may not sound like much, but with the share price of FAS at $5/share, 2 cents is 0.39% of the fund.

Moreover, many brokers charge investors a fixed per-share fee to buy and sell securities: sometimes one penny, but sometimes 2, 3 or even 4 cents per share traded. If you paid two cents per share on each trade, that means a round-trip trade cost you 4 cents per share. Add in the 2 cents' worth of spreads and you’re talking 6 cents a share to trade the fund. Again, that may not sound like much, but 6 cents per share works out to a 1.17% fee to buy and sell FAS at current prices. That’s more than the fund’s annual 0.95% expense ratio!

By executing a reverse stock split and raising the per-share price, the cost to trade will be reduced: 6 cents on a $51.12/share stock price is only 0.117%. To put it another way, the cost of buying and selling $50,000 of FAZ will drop from approximately $117/trade to just $11.70/trade.

The idea was proposed by Matt Hougan on the IndexUniverse.eu blog in early June.