Inverse ETF

A A A

DEFINITION

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

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 that is diametrically ...
  2. Oil ETF

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

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

    Making an investment to reduce the risk of adverse price movements in an asset. ...
  5. Benchmark

    A standard against which the performance of a security, mutual fund or investment ...
  6. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse relationship to ...
  7. Margin Account

    A brokerage account in which the broker lends the customer cash to purchase ...
  8. Russell 2000 Index

    An index measuring the performance approximately 2,000 small-cap companies in ...
  9. Derivative

    A security whose price is dependent upon or derived from one or more underlying ...
  10. Leveraged ETF

    An exchange-traded fund (ETF) that uses financial derivatives and debt to amplify ...
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

  5. Leveraged ETFs: Are They Right For You?
    Options & Futures

    Leveraged ETFs: Are They Right For You?

  6. Shorting ETFs: Profit Or Peril?
    Mutual Funds & ETFs

    Shorting ETFs: Profit Or Peril?

  7. Introduction To Exchange-Traded Funds
    Mutual Funds & ETFs

    Introduction To Exchange-Traded Funds

  8. An Introduction To Exchange-Traded Funds ...
    Investing

    An Introduction To Exchange-Traded Funds ...

    By Free
  9. Exchange-Traded Funds (ETFs)
    Mutual Funds & ETFs

    Exchange-Traded Funds (ETFs)

  10. Add Some Sin To Your Portfolio With ...
    Chart Advisor

    Add Some Sin To Your Portfolio With ...

comments powered by Disqus
Hot Definitions
  1. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
  2. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  3. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  4. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  5. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  6. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Trading Center