What is an inverse ETF?

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Inverse Stock Exchange Fund (Inverse ETF) is a fund that trades as traditional shares on the stock exchange, but brings a return that is inversely proportional to the index. For example, the short standard and the Poor's 500® (S&P 500®), which is inverse ETF S&P 500®, will generate about 12 % return when the S&P 500® drops by 12 percent. Like short positions per stock, the Inverse ETF allows the investor to create a hedge or speculate on the bear market. Unlike the introduction of a short position, however, the inverse ETF, also called a short ETF, does not require an account on the edge, allows a short position on the entire index and limits the scope of the potential loss of the investor to the amount of the original investment.

In addition to speculative profits, investors can use Inverse ETF for various investment strategies. Combined with other assets, inverse ETFs can allow the investor to separate the risks of different parts of the market. For exampleDout to ensure the bear stock market by investing in the inverse ETF Pro S&P 500® while investing in a long ETF for commodities. Many investors will alternate between inverse ETF and long ETF based on market volatility. When the volatility of CBOe is over 30, investors will invest in short ETFs and vice versa, when the CBOE volatility index will be reduced below 30, they will have long positions.

The unique feature of inverse ETF is the use of derivatives. Derivatives are securities based on contracts between two or more parties whose value is derived from the value of one or more basic assets such as stocks, commodities, interest rates or currency. Derivatives are traded by borrowed money, create lever effect and amplify potential profits and losses. Dramatic fluctuations are established can lead to an indefinite correlation of the price of ETF shares with a benchmark.

Compared to mutual funds, the ETF has relatively low annual fees. The reason for the low fee is the fact that the ETF is passively managed, with the ZMEnomes associated with changes in the index. The timing of the market is critical and investors must remain at the top of the decision on when to leave and enter certain markets. Investors must pay the commission for the purchase and sale of ETF shares. ETF trading fees can significantly increase investment costs.