Glossary

An inverse ETF (exchange-traded fund) is a financial instrument designed to perform in the opposite direction of a particular index or benchmark.

In other words, when the underlying index goes down, the inverse ETF's value goes up, and vice versa. These funds use various investment strategies, such as short selling and derivatives, to achieve their goal of inverse performance. They are often used as a hedging tool or for short-term trading. 🔃

For example, the ProShares Short S&P500 (SH) is an inverse ETF that aims to deliver the inverse daily performance of the S&P 500 index.

Fun fact: Inverse ETFs can be combined with leveraged ETFs, creating leveraged inverse ETFs that magnify the inverse performance of the underlying index by a specified factor (eg. 2x or 3x). These funds are primarily used by experienced traders due to their high-risk nature. 🎢