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."


Loading the player...


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.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Reverse Gold ETF

    Exchange traded funds that are designed to trade in a direction ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse ...
  6. Benchmark

    A standard against which the performance of a security, mutual ...
Related Articles
  1. Mutual Funds & ETFs

    The Risks of Investing in Inverse ETFs

    Discover analyses of the risks inherent to inverse exchange-traded funds (ETFs) that investors must understand before considering an investment in this type of ETF.
  2. Mutual Funds & ETFs

    Top 4 Inverse Equities ETFs

    Explore analysis of some of the most popular inverse and leveraged-inverse ETFs that track equity indexes, and learn about the suitability of these ETFs.
  3. Mutual Funds & ETFs

    Top 4 Inverse Bonds ETFs

    Explore analysis of popular inverse bond ETFs that track the U.S. Treasury market, and learn how to use the ETFs as a tactical day trade if interest rates rise.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraShort Bloomberg Crude Oil

    Find out about the ProShares UltraShort Bloomberg Crude Oil ETF, the characteristics of the inverse ETF and the suitability and recommendations of it.
  6. Mutual Funds & ETFs

    An Inside Look At ETF Construction

    If you're an investor who likes to understand how and why your investment products work, this article is for you!
  7. Mutual Funds & ETFs

    4 Ways To Use ETFs In Your Portfolio

    To take full advantage of these vehicles, you need to know how they can fulfill certain strategies.
  8. Mutual Funds & ETFs

    5 Reasons Why ETFs Work For Young Investors

    ETFs contain all of the characteristics that make them the perfect investment opportunity for young investors.
  9. Options & Futures

    Inverse ETFs Can Lift A Falling Portfolio

    These funds can reduce your exposure to market risk or enhance portfolio performance.
  10. Options & Futures

    Leveraged ETFs: Are They Right For You?

    This specialty vehicle offers dramatic results, but can also magnify risk.
  1. What are the most common ETFs that track the metals and mining sector?

    There are two general types of ETFs that track the metals and mining sector. There are ETFs that invest in mining companies ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  5. Why is fiduciary duty so important?

    Fiduciary duty is one the most important professional obligations. It basically provides a much-needed protection for individuals ... Read Full Answer >>
  6. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!