What is an inverse fund?

There are two basic strategies for making money when investing in shares. The most common is to take a long position, which means simply buy shares and hold it all the time before sale. The second strategy is to take a short position or "sell short". This is done by lending and selling shares, with the hope that its price will fall. The investor buys shares back to "cover" his short position at a lower price and profit from the difference. The Inverse Fund provides a way to effectively sell short many shares at a time.

Inverse funds are also called inverse exchange funds (ETF) because they are traded in the public stock market. The inverse fund is designed to function as inverse or the opposite of any index or benchmark that it follows. For example, an inverse fund that monitors 30 shares in the industrial diameter of Dow Jones (DJIA) is looking for a daily percentage step that is opposite to DJIA. If DJIA moves down by two percent, then an inverse fund that follows it will move in H hOutness by two percent. Because the value of the inverse fund increases in the environment of falling stock prices, it is a popular investment during an economic decline.

Before the arrival of inverse funds, if the trader wanted to sell short shares of DJIA, they had to open an account with a brokerage house and sell each of the 30 shares individually. Starting at the end of the 90s, however, inverse funds have begun to create and gain popularity. Inverse funds not only make it easier to sell short shares in the expectations of the shooting market, but also eliminate some of the risk that is traditionally associated with short sales.

The sale of a short warehouse has the disadvantage that the investor exposes theoretically unlimited losses, because there is no absolute upper limit of the price Stock. On the other hand, the inverse fund, on the other hand, is more likely to take a long position on stocks, in the sense that the investor only exposes their purchase price. This also makes pRactic to include the inverse fund as part of a diversified portfolio to ensure long positions. Another reason inverse funds have seen an increase in their popularity is that they can be included in an individual pension account (IRA), while short positions must not be held in these accounts.