Inverse ETF
Inverse exchange traded fund refers to an ETF that capitalises on a decrease in the value of a primary benchmark
It is also common to refer to an inverse ETF also as a “Short ETF” or “Bear ETF.” The purpose of the instrument is to provide investors with the opportunity to profit from market or underlying index downturns without the need to engage in short selling activities.
Many investors who want to protect themselves from the risks associated with short selling include inverse ETFs in their portfolios as an alternative.
Investing in inverse ETFs operates in a manner akin to maintaining multiple short positions, which entail borrowing securities and selling them with the expectation of buying them back at a lower price. Numerous inverse ETFs employ daily futures contracts as a means to generate their returns.
One benefit of inverse ETFs is that they eliminate the need for investors to hold a margin account, which is typically necessary for those seeking to engage in short positions. Margin accounts involve brokers lending money to investors for trading purposes and are commonly used in conjunction with shorting, which is considered an advanced trading practice.
