Bull or Bear Market… Doesn’t matter

Kyle Dennis’ new, 5 Min Strategy is poised to double Your Money Weekly!

Michael S. made 173% with Dollar Ace. So can you!


Inverse ETFs Explained

Jason BondJason Bond ·

New to the trading/investment world? You should consider learning the intricacies of exchange-traded funds (ETFs) before you start digging in and doing a bunch of technical analysis… or god forbid, start “investing” in them, as the outcome could be devastating. The basic idea behind inverse ETFs is to provide market participants with returns that are inverse, or -1x, the daily performance of their underlying indices. That said, these could provide trading opportunities, if you understand the functioning of this type of exchange-traded product.

Inverse Exchange-Traded Funds (ETFs) Explained

An inverse ETF is an exchange-traded product (ETP) that is constructed using derivatives, such as index swaps, in an attempt to provide investors with inverse exposure to the fund’s underlying benchmark. Therefore, inverse ETFs could be used to gain short exposure to index-tracking ETFs that are hard to borrow (HTB) or not optionable. Think of buying inverse ETFs as holding a short position on index-tracking ETPs.

Now, an inverse ETF is not meant to track its underlying benchmark index’s long-term performance. Rather, an inverse ETF only tracks the inverse of the daily performance of the underlying index. Therefore, you should never hold onto an inverse ETF for periods longer than one day, as the performance over that period could deviate from your expectations, due to the compounding of daily returns.

One main advantage of inverse ETFs is that they don’t require market participants to hold a margin account in order to gain short exposure to an index. Rather, all they would need to do is get long the stock, and if the index or benchmark declines, the market participants would begin to profit. The opposite is true when the underlying index rises.

Final Thoughts

Inverse ETFs provide short exposure to underlying benchmarks, or indices, for a one-day period. Now, before going out and trading inverse ETFs, you should read the prospectus and do your due diligence before trading a specific inverse fund. Moreover, you shouldn’t hold inverse ETFs for periods longer than one day because the effects of the compounding of daily returns could increase the tracking error of the fund.


  Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.

You may also like

Exclusive System Tracks Wall St. Insiders

“Dollar Ace Simply Exposes Information That Wall Street Wants To Keep Quiet” Said Kyle Dennis
“One member, Wesley M., has already reported 360%+ gains in just a few short days. Don’t miss this!”
(Reserve Access Now)

“What Recession?!” Jason Bond nets $55,060 in realized profit in One Day

After going 6 for 6 on profitable trades recently, we caught up with Jason to ask how he did it.
Check out Jason’s exclusive interview revealing this tightly guarded strategy. (Watch Now)

RagingBull.com Co-Founder, Jeff Bishop, Launches High Conviction Trade Service

“We listen to our clients and we give them EXACTLY what they want, so we designed a service to deliver 1 trade, 1 time a week, with a 100%+ PROFIT TARGET, directly to your inbox every Monday before the market opens. (Read More)

Be a Better Stock Trader, Starting Today

Get the expert insights, tips and strategies you need to optimize your trading skills and profiles