What is an inverse or short ETF?

Introduction

An inverse or short ETF is an ETF that tracks an index, but the ETF tries to go up or down in the opposite direction of the index. This gives the ETF investor a tool to try to make money when the stock market is going down or when individual sectors or industries are going down. For example, SH, the ProShares Short S&P 500 ETF, tracks the S&P 500 Index, but it moves in the opposite direction:


Inverse ETPs have become very popular:

CategoryCount
1
Alternatives1
Commodities10
Global Equity 20
US Equity49
US Fixed Income 8
Total89

Inverse ETPs use different amounts of leverage:

Leverage factorCount
-3.0025
-2.0040
-1.0024
Total89

Inverse ETPs by type:

ETP TypeCount
ETF81
ETN8
Total89

Average daily trading volume by category:

CategoryAverage Trading Volume
132,693
Alternatives2,141,796
Commodities19,916,233
Global Equity 17,828,526
US Equity290,976,956
US Fixed Income 9,793,092
Total340,789,296

How Do Inverse ETFs Work?

Inverse ETFs typically achieve their inverse exposure using swap agreements. A swap agreement is a private agreement with one of the major international investment banks like UBS, Credit Suisse, Morgan Stanley and Goldman Sachs. Some ETF sponsors actually disclose on their website who the swap agreements are with, while other ETF sponsors do not (those ETF sponsors merely list "S&P 500 index swap" as a holding, without mentioning the investment bank that it is with).

You can visit the home page of each ETF if you would like to read a little more about how they are trying to do it. Almost every inverse ETF's home page has a "current holdings" or "daily holdings" page that will show you exactly what they are buying.

Keep in mind that inverse ETNs don't hold any assets, since an ETN is just a debt instrument issued by a bank that follows an index -- read more about ETNs), so it is easy for an ETN to be an inverse ETN.

Inverse ETFs Are Tricky To Use

It can be difficult to figure out how to effectively trade an inverse ETF, especially an inverse stock ETF. Remember, over long periods of time, the U.S. stock market always goes up. So using an inverse ETF to trade the U.S. stock market is difficult, because you are making a trade that is counter to the long-term trend. Using an inverse stock market ETF requires a degree of market timing that is extremely difficult. So obviously, inverse ETFs are considered to be short-term trading tools only that need to be carefully monitored and used.

At times, the huge volume of trading in inverse ETFs seems hard to believe, especially when the U.S. stock market has been in a 7 or 8 year bull run. Here are the most actively traded inverse ETFs:

SymbolDescriptionLeverage factorCategoryAverage volumeActions
SQQQProShares UltraPro Short QQQ (3x) ETF-3.00US Equity 105,576,518Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 38,412,800Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 26,773,191Analyze
PSQProShares Short QQQ ETF-1.00US Equity 26,288,028Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 17,321,112Analyze
KOLDProShares UltraShort DJ-UBS Natural Gas ETF-2.00Commodities12,180,009Analyze
SOXSDirexion Daily Semiconductor Bear (3x) ETF-3.00US Equity11,980,764Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity10,533,640Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 8,842,371Analyze
QIDProShares UltraShort (2x) QQQ ETF-2.00US Equity 8,671,795Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 8,099,356Analyze
SCOUltraShort (2x) DJ-UBS Crude Oil ETF-2.00Commodities6,134,457Analyze
TBTProShares UltraShort 20+ Year Treasury (2x) ETF-2.00US Fixed Income 5,916,457Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 5,129,535Analyze
JDSTDirexion Daily Junior Gold Miners Index (2x) Bear ETF-2.00Global Equity 4,464,916Analyze

Inverse ETFs are being used in different ways, depending on the type. So let's discuss a few of the most active types of inverse trades.

Equities

The high volume of trading in inverse equity ETFs is difficult to understand in the middle of a stock market bull run. In the middle of a bull run, it is really difficult for an investor to time a short-term market dip. You have to buy an inverse ETF when the market is in a short-term correction, and sell it before the market recovers, which can be a difficult exercise in market timing. Can sophisticated traders make money during a short-term market dip using automated software programs and technical indicators? Maybe, but it is difficult.

We suspect the high volume of trading in inverse U.S. equity ETFs is attributable to a combination of factors:

Who knows what else? We are sure that people a lot smarter than us have figured out all kinds of other complex strategies and automated trading programs to use these inverse ETFs.

U.S. Fixed Income

There are a lot of inverse fixed income ETFs. A lot of the trading of inverse U.S. fixed income ETFs makes sense, or is easier to understand, because traders are making short-term bets on rising U.S. interest rates. Inverse ETFs like DLBS, DTUS, and DTYS and others will go up in value if interest rates start to rise in the United States.

VIX Futures

There are several inverse ETFs related to VIX futures that are heavily traded - see XIV and ZIV. Because VIX futures tend to go up or down in the opposite direction of the U.S. stock market, XIV and ZIV are inverse ETFs that are basically ways to go long the U.S. stock market, but in a highly leveraged, highly volatile way. So the high volume of trading in XIV and ZIV makes sense, although the effective leverage and volatility involved is unbelievable. Read What is the VIX? and Volatility ETFs if you are new to VIX futures.

Commodities

Because commodity prices go up and down such much, there has always been a ton of trading of inverse ETFs that track the price of oil, natural gas, gold and silver. Similarly, there has always been a ton of trading of the stocks of companies that mine for gold and silver, partly because their stocks tend to not be highly correlated with the overall stock market (and they are correlated with the prices of gold and silver).

We don't have the data to prove or dispute this at this time, but some people believe that commodity prices are more "trendy" -- i.e. once they start an upward or downward trend, they are more likely to stay in that trend until some event causes a trend reversal. If true, inverse commodity ETFs should theoretically be easier to short-term trade.

Why Do Inverse ETFs Have Dividends?

Inverse or short ETFs can have dividends for two reasons. Inverse ETFs use derivative products, including futures contracts and/or swap agreements, to obtain short exposure to indexes or benchmarks. These derivatives generally provide the fund with the desired short exposure to an index or benchmark, but sometimes it does not take all of the fund's cash to purchase the required derivatives. As a result, the fund may have excess cash available to invest in short-term debt securities and/or money market instruments. This generates net investment income that has to be distributed to shareholders.

Alternatively, during the course of buying and selling futures contracts and/or swap agreements, the fund may generate short-term capital gains, which also have to be distributed to shareholders. All 40 Act ETFs are required by IRS regulations to distribute substantially all of their net investment income and capital gains to shareholders at least annually.

List of Inverse or Short ETFs

Here is the list of inverse ETFs that are currently active in our database. Click the "analyze" button if you want to just read more about some of these inverse ETFs.

SymbolDescriptionLeverage factorCategoryAverage volumeActions
BERZMicroSectors FANG & Innovation -3x Inverse Leveraged ETN-3.00Global Equity 154,924Analyze
BISUltraShort NASDAQ Biotechnology (2x) ETF-2.00US Equity43,510Analyze
BNKDMicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN-3.00US Equity66,737Analyze
BZQProShares UltraShort MSCI Brazil ETF-2.00Global Equity 112,902Analyze
CHADDirexion Daily CSI 300 China A Share Bear 1x Shares ETF-1.00Global Equity16,015Analyze
CLDSDirexion Daily Cloud Computing Bear 2X Shares ETF-2.00Global Equity 11,118Analyze
DGZPowerShares Gold Short ETN-1.00Commodities768Analyze
DOGProShares Short Dow30 ETF-1.00US Equity 710,680Analyze
DRIPDirexion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF-3.00US Equity 3,379,172Analyze
DRVDirexion Real Estate Bear (3x) ETF-3.00US Equity368,329Analyze
DUGUltraShort (2x) Oil & Gas ETF-2.00US Equity 494,149Analyze
DUSTDirexion Daily Gold Miner Stocks Bear (2x) ETF-2.00Global Equity 3,254,288Analyze
DWSHDorsey Wright Short ETF-1.00US Equity97,240Analyze
DXDProShares UltraShort Dow30 ETF-2.00US Equity 560,022Analyze
DZZDB Gold Double Short ETN-2.00Commodities30,848Analyze
EDZDirexion Daily Emerging Market Bear (3x) ETF-3.00Global Equity369,552Analyze
EEVUltraShort (2x) MSCI Emerging Markets ETF-2.00Global Equity19,833Analyze
EFUUltraShort (2x) MSCI EAFE ETF-2.00Global Equity 7,298Analyze
EFZProShares Short MSCI EAFE ETF-1.00Global Equity 194,397Analyze
EMTYProShares Decline of the Retail Store ETF-1.00US Equity36,332Analyze
EPVUltrashort FTSE Europe (2x) ETF-2.00Global Equity 604,338Analyze
ERYDirexion Energy Sector Bear (2x) ETF-2.00US Equity 1,106,330Analyze
EUMProShares Short MSCI Emerging Markets ETF-1.00Global Equity186,696Analyze
EUOUltraShort Euro (2x) ETF-2.00Commodities127,004Analyze
EWVProShares UltraShort MSCI Japan ETF-2.00Global Equity 14,850Analyze
FAZDirexion Financial Bear 3x Shares ETF-3.00US Equity 2,666,781Analyze
FNGDBMO REX MicroSectors FANG+ Index 3X Inverse Leveraged ETN-3.00Global Equity 852,543Analyze
FXPUltraShort (2x) FTSE China 50 ETF-2.00Global Equity17,028Analyze
GDXDMicroSectors Gold Miners -3X Inverse Leveraged ETNs-3.00132,693Analyze
GLLUltraShort (2x) Gold ETF-2.00Commodities55,342Analyze
HDGERanger Equity Bear ETF-1.00US Equity 153,102Analyze
HIBSDirexion Daily S&P 500 High Beta Bear 3X ETF-3.00US Equity 1,295,371Analyze
JDSTDirexion Daily Junior Gold Miners Index (2x) Bear ETF-2.00Global Equity 4,464,916Analyze
KOLDProShares UltraShort DJ-UBS Natural Gas ETF-2.00Commodities12,180,009Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity10,533,640Analyze
MJINETFMG 2X Daily Inverse Alternative Harvest ETF-2.00Global Equity12,036Analyze
MYYShort MidCap 400 ETF-1.00US Equity37,586Analyze
MZZUltraShort (2x) MidCap400 ETF-2.00US Equity2,503Analyze
NRGDMicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN-3.00US Equity 308,738Analyze
OILDMicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN-3.00Commodities967,835Analyze
PSQProShares Short QQQ ETF-1.00US Equity 26,288,028Analyze
PSTProShares UltraShort 7-10 Year Treasury ETF-2.00US Fixed Income 130,968Analyze
QIDProShares UltraShort (2x) QQQ ETF-2.00US Equity 8,671,795Analyze
REKProShares Short Real Estate ETF-1.00US Equity101,807Analyze
REWUltraShort (2x) Technology ETF-2.00US Equity 21,236Analyze
RWMShort Russell 2000 ETF-1.00US Equity 2,306,474Analyze
RXDProShares UltraShort Health Care ETF-2.00US Equity 3,865Analyze
SARKTuttle Capital Short Innovation ETF-1.00Global Equity 3,245,529Analyze
SBBProShares Short S&P SmallCap 600 ETF-1.00US Equity 8,948Analyze
SCCProShares UltraShort Consumer Services ETF-2.00US Equity11,650Analyze
SCOUltraShort (2x) DJ-UBS Crude Oil ETF-2.00Commodities6,134,457Analyze
SDDUltraShort (2x) SmallCap 600 ETF-2.00US Equity 9,916Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 5,129,535Analyze
SDPProShares UltraShort Utilities ETF-2.00US Equity20,771Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 8,842,371Analyze
SEFProShares Short Financials ETF-1.00US Equity 146,477Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 38,412,800Analyze
SIJProShares UltraShort Industrials ETF-2.00US Equity4,723Analyze
SINVETFMG Prime 2X Daily Inverse Junior Silver Miners ETF-2.00Global Equity34,720Analyze
SJBProShares Short High Yield ETF-1.00US Fixed Income796,315Analyze
SKFUltraShort (2x) Financials ETF-2.00US Equity 53,175Analyze
SMDDUltraPro Short MidCap 400 (3x) ETF-3.00US Equity23,698Analyze
SMNUltraShort (2x) Basic Materials ETF-2.00US Equity35,320Analyze
SOGUThe Short De-SPAC ETF-1.00US Equity 21,547Analyze
SOXSDirexion Daily Semiconductor Bear (3x) ETF-3.00US Equity11,980,764Analyze
SPDNDirexion Daily S&P 500 Bear 1x Shares ETF-1.00US Equity 3,392,342Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 17,321,112Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 26,773,191Analyze
SQQQProShares UltraPro Short QQQ (3x) ETF-3.00US Equity 105,576,518Analyze
SRSUltraShort (2x) Real Estate ETF-2.00US Equity168,082Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF-3.00US Equity 959,174Analyze
SSGUltraShort (2x) Semiconductors ETF-2.00US Equity 47,106Analyze
SVXYProShares Short VIX Short-Term Futures ETF-1.00Alternatives2,141,796Analyze
SZKProShares UltraShort Consumer Goods ETF-2.00US Equity21,966Analyze
TBFShort 20+Year Treasury ETF-1.00US Fixed Income 1,895,176Analyze
TBTProShares UltraShort 20+ Year Treasury (2x) ETF-2.00US Fixed Income 5,916,457Analyze
TBXProShares Short 7-10 Year Treasury ETF-1.00US Fixed Income 133,495Analyze
TECSDirexion Daily Technology Sector Short (3x) ETF-3.00US Equity 2,161,211Analyze
TMVDirexion Daily 20+ Year Treasury Bear 3X ETF-3.00US Fixed Income 628,887Analyze
TTTUltraPro Short 20+ Year Treasury (3x) ETF-3.00US Fixed Income 138,765Analyze
TWMUltraShort (2x) Russell 2000 ETF-2.00US Equity 1,896,581Analyze
TYODirexion Daily 10-Yr Treasury Bear 3x Shrs ETF-3.00US Fixed Income 153,029Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 8,099,356Analyze
UDNPowersShares DB US Dollar Index Bearish ETF-1.00Commodities189,342Analyze
WEBSDirexion Daily Dow Jones Internet Bear 3X ETF-3.00US Equity605,195Analyze
YANGDirexion China Bear (3x) ETF-3.00Global Equity4,245,260Analyze
YCSProShares UltraShort Yen ETF-2.00Commodities57,105Analyze
YXIShort FTSE China 50 ETF-1.00Global Equity 10,283Analyze
ZSLUltraShort (2x) Silver ETF-2.00Commodities173,523Analyze


All data is a live query from our database. The wording was last updated: 01/19/2018.

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