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
Alternatives2
Commodities14
Global Equity 17
US Equity58
US Fixed Income12
Total103

Inverse ETPs use different amounts of leverage:

Leverage factorCount
-3.0031
-2.0039
-1.0033
Total103

Inverse ETPs by type:

ETP TypeCount
ETF85
ETN18
Total103

Average daily trading volume by category:

CategoryAverage Trading Volume
Alternatives5,303,921
Commodities5,958,620
Global Equity 12,055,768
US Equity347,951,733
US Fixed Income2,254,387
Total373,524,429

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 82,169,600Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 52,767,369Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 43,443,997Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 28,348,006Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 17,664,045Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 17,633,705Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 16,964,686Analyze
DRIPDirexion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF-3.00US Equity 14,166,308Analyze
QIDUltraShort (2x) QQQ ETF-2.00US Equity 11,278,544Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF-3.00US Equity 8,828,631Analyze
SOXSDirexion Semiconductor Bear (3x) ETF-3.00US Equity8,645,167Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity8,373,111Analyze
FAZDirexion financial sector bear (3x) ETF-3.00US Equity 7,110,445Analyze
PSQProShares Short QQQ ETF-1.00US Equity 6,833,017Analyze
TWMUltraShort (2x) Russell 2000 ETF-2.00US Equity 5,240,030Analyze

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
BISUltraShort NASDAQ Biotechnology (2x) ETF-2.00US Equity334,007Analyze
BNKDMicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN-3.00US Equity31,894Analyze
BNKZMicroSectors U.S. Big Banks Index -2X Inverse Leveraged ETN-2.00US Equity221Analyze
BZQProShares UltraShort MSCI Brazil ETF-2.00Global Equity 865,767Analyze
CHADDirexion Daily CSI 300 China A Share Bear 1x Shares ETF-1.00Global Equity22,145Analyze
CROCProShares UltraShort Australian Dollar ETF-2.00Commodities814Analyze
DDGShort Oil & Gas Stocks ETF-1.00US Equity10,803Analyze
DFVSIPATH US TREASURY 5 YR BEAR ETN-1.00US Fixed Income3Analyze
DGAZVelocityShares Inverse Natural Gas (3x) ETN-3.00Commodities253,033Analyze
DGLDVelocityShares Gold Bear (3x) ETN-3.00Commodities130,404Analyze
DGZPowerShares Gold Short ETN-1.00Commodities1,484Analyze
DOGProShares Short Dow30 ETF-1.00US Equity 1,958,435Analyze
DRIPDirexion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF-3.00US Equity 14,166,308Analyze
DRVDirexion Real Estate Bear (3x) ETF-3.00US Equity529,949Analyze
DSLVVelocityShares Silver Bear (3x) ETN-3.00Commodities458,450Analyze
DTUSiPath US Treasury 2-year Bear ETN-1.00US Fixed Income472Analyze
DUGUltraShort (2x) Oil & Gas ETF-2.00US Equity 125,735Analyze
DUSTDirexion Gold Miner Stocks Bear (3x) ETF-3.00Global Equity 3,773,947Analyze
DWSHDorsey Wright Short ETF-1.00US Equity330,644Analyze
DXDProShares UltraShort Dow30 ETF-2.00US Equity 4,576,400Analyze
DZZDB Gold Double Short ETN-2.00Commodities5,099Analyze
EDZDirexion Daily Emerging Market Bear (3x) ETF-3.00Global Equity585,702Analyze
EEVUltraShort (2x) MSCI Emerging Markets ETF-2.00Global Equity36,808Analyze
EFUUltraShort (2x) MSCI EAFE ETF-2.00Global Equity 5,518Analyze
EFZProShares Short MSCI EAFE ETF-1.00Global Equity 135,355Analyze
EMTYProShares Decline of the Retail Store ETF-1.00US Equity62,493Analyze
EPVUltrashort FTSE Europe (2x) ETF-2.00Global Equity 14,111Analyze
ERYDirexion Energy Sector Bear (3x) ETF-3.00US Equity 445,113Analyze
EUFXProShares Short Euro ETF-1.00Commodities375Analyze
EUMProShares Short MSCI Emerging Markets ETF-1.00Global Equity545,031Analyze
EUOUltraShort Euro (2x) ETF-2.00Commodities58,365Analyze
EWVProShares UltraShort MSCI Japan ETF-2.00Global Equity 6,231Analyze
FAZDirexion financial sector bear (3x) ETF-3.00US Equity 7,110,445Analyze
FNGDBMO REX MicroSectors FANG+ Index 3X Inverse Leveraged ETN-3.00Global Equity 1,854,066Analyze
FNGZMicroSectors FANG+ Index -2X Leveraged ETN-2.00Global Equity 1,069Analyze
FXPUltraShort (2x) FTSE China 50 ETF-2.00Global Equity76,712Analyze
GLLUltraShort (2x) Gold ETF-2.00Commodities38,488Analyze
GNAFMicroSectors FANG+ Index -1X Inverse ETN-1.00Global Equity 4,466Analyze
HDGERanger Equity Bear ETF-1.00US Equity 1,316,094Analyze
HIBSDirexion Daily S&P 500 High Beta Bear 3X ETF-3.00US Equity 2,047,925Analyze
JDSTDaily Junior Gold Miners Index (3x) Bear ETF-3.00Global Equity 3,604,872Analyze
KNABMicroSectors U.S. Big Banks Index Inverse ETN-1.00US Equity601Analyze
KOLDProShares UltraShort DJ-UBS Natural Gas ETF-2.00Commodities170,898Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity8,373,111Analyze
LACKDirexion Daily Consumer Staples Bear 3X Shares ETF-3.00US Equity7,958Analyze
MUTEDirexion Daily Communication Services Index Bear 3X Shares ETF-3.00US Equity8,644Analyze
MYYShort MidCap 400 ETF-1.00US Equity19,543Analyze
MZZUltraShort (2x) MidCap400 ETF-2.00US Equity54,229Analyze
NRGDMicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN-3.00US Equity 84,833Analyze
NRGZMicroSectors U.S. Big Oil Index -2X Inverse Leveraged ETN-2.00US Equity 80Analyze
PASSDirexion Daily Consumer Discretionary Bear 3X Shares ETF-3.00US Equity 74,481Analyze
PSQProShares Short QQQ ETF-1.00US Equity 6,833,017Analyze
PSTProShares UltraShort 7-10 Year Treasury ETF-2.00US Fixed Income 15,211Analyze
QIDUltraShort (2x) QQQ ETF-2.00US Equity 11,278,544Analyze
REKProShares Short Real Estate ETF-1.00US Equity64,373Analyze
REWUltraShort (2x) Technology ETF-2.00US Equity 32,936Analyze
RWMShort Russell 2000 ETF-1.00US Equity 3,613,370Analyze
RXDProShares UltraShort Health Care ETF-2.00US Equity 8,595Analyze
SBBProShares Short S&P SmallCap 600 ETF-1.00US Equity 27,765Analyze
SBMProShares Short Basic Materials ETF-1.00US Equity853Analyze
SCCProShares UltraShort Consumer Services ETF-2.00US Equity6,831Analyze
SCOUltraShort (2x) DJ-UBS Crude Oil ETF-2.00Commodities4,639,237Analyze
SDDUltraShort (2x) SmallCap 600 ETF-2.00US Equity 71,846Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 17,633,705Analyze
SDPProShares UltraShort Utilities ETF-2.00US Equity9,386Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 17,664,045Analyze
SEFProShares Short Financials ETF-1.00US Equity 120,656Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 16,964,686Analyze
SIJProShares UltraShort Industrials ETF-2.00US Equity24,537Analyze
SJBProShares Short High Yield ETF-1.00US Fixed Income193,407Analyze
SKFUltraShort (2x) Financials ETF-2.00US Equity 270,675Analyze
SMDDUltraPro Short MidCap 400 (3x) ETF-3.00US Equity129,914Analyze
SMNUltraShort (2x) Basic Materials ETF-2.00US Equity7,006Analyze
SOXSDirexion Semiconductor Bear (3x) ETF-3.00US Equity8,645,167Analyze
SPDNDirexion Daily S&P 500 Bear 1x Shares ETF-1.00US Equity 532,057Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 52,767,369Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 43,443,997Analyze
SQQQProShares UltraPro Short QQQ (3x) ETF-3.00US Equity 82,169,600Analyze
SRSUltraShort (2x) Real Estate ETF-2.00US Equity432,124Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF-3.00US Equity 8,828,631Analyze
SSGUltraShort (2x) Semiconductors ETF-2.00US Equity 31,578Analyze
SVXYProShares Short VIX Short-Term Futures ETF-1.00Alternatives5,163,742Analyze
SZKProShares UltraShort Consumer Goods ETF-2.00US Equity2,360Analyze
TAPRBarclays Inverse US Treasury Aggt ETN-1.00US Fixed Income5Analyze
TBFShort 20+Year Treasury ETF-1.00US Fixed Income 679,636Analyze
TBTProShares UltraShort 20+ Year Treasury (2x) ETF-2.00US Fixed Income 1,195,838Analyze
TBXProShares Short 7-10 Year Treasury ETF-1.00US Fixed Income 2,834Analyze
TECSDirexion Technology Sector Short (3x) ETF-3.00US Equity 1,011,865Analyze
TMVDirexion Daily 20+ Year Treasury Bear 3X ETF-3.00US Fixed Income 135,796Analyze
TTTUltraPro Short 20+ Year Treasury (3x) ETF-3.00US Fixed Income 23,039Analyze
TWMUltraShort (2x) Russell 2000 ETF-2.00US Equity 5,240,030Analyze
TYBSDirexion Daily 20+ Year Treasury Bear 1x Shares ETF-1.00US Fixed Income 542Analyze
TYODirexion Daily 10-Yr Treasury Bear 3x Shrs ETF-3.00US Fixed Income 7,604Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 28,348,006Analyze
UDNPowersShares DB US Dollar Index Bearish ETF-1.00Commodities93,846Analyze
WEBSDirexion Daily Dow Jones Internet Bear 3X ETF-3.00US Equity66,040Analyze
YANGDirexion China Bear (3x) ETF-3.00Global Equity514,176Analyze
YCOMProShares UltraShort -2x Communication Services Select Sector ETF-2.00US Equity184Analyze
YCSProShares UltraShort Yen ETF-2.00Commodities5,275Analyze
YGRNMicroSectors U.S. Big Oil Index Inverse ETN-1.00US Equity 39Analyze
YXIShort FTSE China 50 ETF-1.00Global Equity 9,792Analyze
ZIVDaily Inverse VIX Medium-Term ETN-1.00Alternatives140,179Analyze
ZSLUltraShort (2x) Silver ETF-2.00Commodities102,852Analyze


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

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