Inverse ETF

AAA

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 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

RELATED TERMS
  1. Reverse Gold ETF

    Exchange traded funds that are designed to trade in a direction ...
  2. Derivative

    A security whose price is dependent upon or derived from one ...
  3. Leveraged ETF

    An exchange-traded fund (ETF) that uses financial derivatives ...
  4. Oil ETF

    A category of exchange-traded funds that invest in companies ...
  5. Exchange-Traded Fund - ETF

    A security that tracks an index, a commodity or a basket of assets ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
Related Articles
  1. An Inside Look At ETF Construction
    Mutual Funds & ETFs

    An Inside Look At ETF Construction

  2. 4 Ways To Use ETFs In Your Portfolio
    Mutual Funds & ETFs

    4 Ways To Use ETFs In Your Portfolio

  3. 5 Reasons Why ETFs Work For Young Investors
    Mutual Funds & ETFs

    5 Reasons Why ETFs Work For Young Investors

  4. Inverse ETFs Can Lift A Falling Portfolio
    Options & Futures

    Inverse ETFs Can Lift A Falling Portfolio

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center