Search Investopedia

Inverse ETF

Filed Under » ,
Dictionary Says

Definition of 'Inverse ETF'

An exchange-traded fund (ETF) that is constructed by using various derivatives for the purpose of profiting from a decline in the value of an underlying benchmark. Investing in these ETFs is similar to holding various short positions, or using a combination of advanced investment strategies to profit from falling prices. 

Also known as a "Short ETF," or "Bear ETF".
Investopedia Says

Investopedia explains 'Inverse ETF'

One advantage is that these ETFs do not require the investor to hold a margin account as would be the case for investors looking to enter into short positions.

There are several inverse ETFs that can be used to profit from declines in broad market indexes, such as the Russell 2000 or the Nasdaq 100. In addition, it is possible to buy inverse ETFs that focus on a specific sector, such as financials, energy or consumer staples. Most investors look to purchase inverse ETFs so that they can hedge their portfolios against falling prices.

Video Definition

Related Definitions

  •

    Leveraged ETF

    An exchange-traded fund (ETF) that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the ...
    Read More »

  • Exchange-Traded Fund - ETF

    A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they ...
    Read More »

  • Derivative

    A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by ...
    Read More »

    • Benchmark

      A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for ...
      Read More »

    • Russell 2000 Index

      An index measuring the performance of the 2,000 smallest companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark ...
      Read More »

    • Hedge

      Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures ...
      Read More »

    • Inverse Floater

      A bond or other type of debt whose coupon rate has an inverse relationship to a benchmark rate. An inverse floater adjusts its coupon payment as the interest rate changes. When the ...
      Read More »

    • Margin Account

      A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock ...
      Read More »

    • Oil ETF

      A category of exchange-traded funds that invest in companies engaged in oil and gas discovery, production, distribution and retail. Some oil ETFs may be set up as commodity pools – with ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions