Inverse ETF Definition

Inverse ETF Definition

Learn the definition of inverse etf and other ETF terminology from the etf.com glossary.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Inverse

Inverse ETFs, or "short ETFs," are financial products engineered to profit from declining markets. These funds seek to provide the opposite, or inverse, daily return of a specific index by using derivatives or other financial instruments. Inverse ETFs are employed as a tactical tool for investors to hedge against market downturns or to benefit from falling prices in a particular sector or asset class. Inverse ETFs may also use leverage to amplify their returns further, such as a 2x or 3x strategy. It's important to note that due to the compounding nature of daily resets, these ETFs are generally suitable for short-term strategies, and their performance can deviate from expectations over extended periods, emphasizing the importance of careful monitoring and risk management.

Related Terms

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.