Inverse ETF

Inverse ETF

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Inverse ETF

An inverse exchange-traded fund (ETF) is an ETF, traded on a public stock market, which is designed to perform as the inverse of any index or benchmark it is designed to track. They funds work by using short selling, trading of derivatives such as futures and other leveraged investment techniques.

To be clearer about Inverse ETFs, an inverse ETF on the other hand would simple move in the opposite direction of an index. For example, the ProShares Short QQQ ETF (whose underlying index is the NASDAQ) will increase if the Nasdaq falls. So, if you expect the market to go down and companies in NASDAQ to perform poor, you could buy the ProShares Short QQQ to avoid losses. In recent times, Inverse ETFs are gaining popularity because the overall market sentiment is bearish, and everything seems to go down. Hence, Inverse ETF is also known as 'Short ETF' or 'Bear ETF.'

Inverse ETFs are best for choice for short-term trading, if there is a volatility of the market.

Inverse ETF largely employ short positioning for making profits in the falling market. Short positioning involves selling of commodities, currencies or securities due to expectation of a further fall in a bearish market. Later, the seller buys the same securities at the lower price thus gaining profits.

Here are few benefits of the Inverse ETFs:

1. You can take advantage of the volatility of the market.

2. You can buy a leveraged Inverse ETF, and increase your chances of making a large profit with a small loss.

3. Inverse ETFs work independently of margin accounts which are required in the case of investors who hope to enter into short positions.

Finally, Inverse ETFs are types of ETFs that can be traded for the short term, particularly in a bear market. That is a reason why inverse ETF are a popular type investment in a 'bear markets.' However, if you ignore volatility or if you want to invest for a long term, then you should not dip into in this product.

Here are few Inverse ETFs:

ProShares Short QQQ

ProShares Short Dow 30

ProShares Short S&P 500

ProShares Short Nasdaq 100

Direxion Financial Bear 3X