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
128,846
Alternatives7,595,472
Commodities28,108,355
Global Equity 21,351,949
US Equity441,632,395
US Fixed Income 13,327,924
Total512,144,941

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 149,529,349Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 46,795,867Analyze
PSQProShares Short QQQ ETF-1.00US Equity 43,155,710Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 33,056,758Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 31,182,252Analyze
QIDProShares UltraShort (2x) QQQ ETF-2.00US Equity 29,823,087Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 18,480,711Analyze
KOLDProShares UltraShort DJ-UBS Natural Gas ETF-2.00Commodities16,324,757Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 13,638,849Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 12,652,161Analyze
SCOUltraShort (2x) DJ-UBS Crude Oil ETF-2.00Commodities11,174,639Analyze
SOXSDirexion Daily Semiconductor Bear (3x) ETF-3.00US Equity10,764,382Analyze
ERYDirexion Energy Sector Bear (2x) ETF-2.00US Equity 10,091,548Analyze
TBTProShares UltraShort 20+ Year Treasury (2x) ETF-2.00US Fixed Income 7,944,688Analyze
SVXYProShares Short VIX Short-Term Futures ETF-1.00Alternatives7,595,472Analyze

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 86,252Analyze
BISUltraShort NASDAQ Biotechnology (2x) ETF-2.00US Equity25,442Analyze
BNKDMicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN-3.00US Equity49,912Analyze
BZQProShares UltraShort MSCI Brazil ETF-2.00Global Equity 217,151Analyze
CHADDirexion Daily CSI 300 China A Share Bear 1x Shares ETF-1.00Global Equity102,025Analyze
CLDSDirexion Daily Cloud Computing Bear 2X Shares ETF-2.00Global Equity 15,933Analyze
DGZPowerShares Gold Short ETN-1.00Commodities1,937Analyze
DOGProShares Short Dow30 ETF-1.00US Equity 3,017,712Analyze
DRIPDirexion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF-3.00US Equity 3,566,873Analyze
DRVDirexion Real Estate Bear (3x) ETF-3.00US Equity409,503Analyze
DUGUltraShort (2x) Oil & Gas ETF-2.00US Equity 311,517Analyze
DUSTDirexion Daily Gold Miner Stocks Bear (2x) ETF-2.00Global Equity 3,504,844Analyze
DWSHDorsey Wright Short ETF-1.00US Equity58,111Analyze
DXDProShares UltraShort Dow30 ETF-2.00US Equity 2,384,346Analyze
DZZDB Gold Double Short ETN-2.00Commodities7,375Analyze
EDZDirexion Daily Emerging Market Bear (3x) ETF-3.00Global Equity1,105,850Analyze
EEVUltraShort (2x) MSCI Emerging Markets ETF-2.00Global Equity33,676Analyze
EFUUltraShort (2x) MSCI EAFE ETF-2.00Global Equity 7,530Analyze
EFZProShares Short MSCI EAFE ETF-1.00Global Equity 151,876Analyze
EMTYProShares Decline of the Retail Store ETF-1.00US Equity31,233Analyze
EPVUltrashort FTSE Europe (2x) ETF-2.00Global Equity 483,150Analyze
ERYDirexion Energy Sector Bear (2x) ETF-2.00US Equity 10,091,548Analyze
EUMProShares Short MSCI Emerging Markets ETF-1.00Global Equity310,538Analyze
EUOUltraShort Euro (2x) ETF-2.00Commodities144,326Analyze
EWVProShares UltraShort MSCI Japan ETF-2.00Global Equity 23,674Analyze
FAZDirexion Financial Bear 3x Shares ETF-3.00US Equity 4,102,325Analyze
FNGDBMO REX MicroSectors FANG+ Index 3X Inverse Leveraged ETN-3.00Global Equity 808,692Analyze
FXPUltraShort (2x) FTSE China 50 ETF-2.00Global Equity58,888Analyze
GDXDMicroSectors Gold Miners -3X Inverse Leveraged ETNs-3.00128,846Analyze
GLLUltraShort (2x) Gold ETF-2.00Commodities95,040Analyze
HDGERanger Equity Bear ETF-1.00US Equity 268,808Analyze
HIBSDirexion Daily S&P 500 High Beta Bear 3X ETF-3.00US Equity 1,037,604Analyze
JDSTDirexion Daily Junior Gold Miners Index (2x) Bear ETF-2.00Global Equity 3,930,571Analyze
KOLDProShares UltraShort DJ-UBS Natural Gas ETF-2.00Commodities16,324,757Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity3,974,062Analyze
MJINETFMG 2X Daily Inverse Alternative Harvest ETF-2.00Global Equity24,376Analyze
MYYShort MidCap 400 ETF-1.00US Equity30,773Analyze
MZZUltraShort (2x) MidCap400 ETF-2.00US Equity6,701Analyze
NRGDMicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN-3.00US Equity 135,081Analyze
OILDMicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN-3.00Commodities32,464Analyze
PSQProShares Short QQQ ETF-1.00US Equity 43,155,710Analyze
PSTProShares UltraShort 7-10 Year Treasury ETF-2.00US Fixed Income 320,988Analyze
QIDProShares UltraShort (2x) QQQ ETF-2.00US Equity 29,823,087Analyze
REKProShares Short Real Estate ETF-1.00US Equity47,654Analyze
REWUltraShort (2x) Technology ETF-2.00US Equity 89,875Analyze
RWMShort Russell 2000 ETF-1.00US Equity 5,102,138Analyze
RXDProShares UltraShort Health Care ETF-2.00US Equity 11,174Analyze
SARKTuttle Capital Short Innovation ETF-1.00Global Equity 4,368,626Analyze
SBBProShares Short S&P SmallCap 600 ETF-1.00US Equity 15,405Analyze
SCCProShares UltraShort Consumer Services ETF-2.00US Equity25,919Analyze
SCOUltraShort (2x) DJ-UBS Crude Oil ETF-2.00Commodities11,174,639Analyze
SDDUltraShort (2x) SmallCap 600 ETF-2.00US Equity 12,671Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 13,638,849Analyze
SDPProShares UltraShort Utilities ETF-2.00US Equity17,040Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 18,480,711Analyze
SEFProShares Short Financials ETF-1.00US Equity 119,203Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 46,795,867Analyze
SIJProShares UltraShort Industrials ETF-2.00US Equity5,701Analyze
SINVETFMG Prime 2X Daily Inverse Junior Silver Miners ETF-2.00Global Equity1,785Analyze
SJBProShares Short High Yield ETF-1.00US Fixed Income782,429Analyze
SKFUltraShort (2x) Financials ETF-2.00US Equity 61,564Analyze
SMDDUltraPro Short MidCap 400 (3x) ETF-3.00US Equity28,392Analyze
SMNUltraShort (2x) Basic Materials ETF-2.00US Equity22,133Analyze
SOGUThe Short De-SPAC ETF-1.00US Equity 47,522Analyze
SOXSDirexion Daily Semiconductor Bear (3x) ETF-3.00US Equity10,764,382Analyze
SPDNDirexion Daily S&P 500 Bear 1x Shares ETF-1.00US Equity 5,787,445Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 31,182,252Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 33,056,758Analyze
SQQQProShares UltraPro Short QQQ (3x) ETF-3.00US Equity 149,529,349Analyze
SRSUltraShort (2x) Real Estate ETF-2.00US Equity263,199Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF-3.00US Equity 1,564,943Analyze
SSGUltraShort (2x) Semiconductors ETF-2.00US Equity 30,182Analyze
SVXYProShares Short VIX Short-Term Futures ETF-1.00Alternatives7,595,472Analyze
SZKProShares UltraShort Consumer Goods ETF-2.00US Equity17,464Analyze
TBFShort 20+Year Treasury ETF-1.00US Fixed Income 2,427,846Analyze
TBTProShares UltraShort 20+ Year Treasury (2x) ETF-2.00US Fixed Income 7,944,688Analyze
TBXProShares Short 7-10 Year Treasury ETF-1.00US Fixed Income 448,193Analyze
TECSDirexion Daily Technology Sector Short (3x) ETF-3.00US Equity 3,977,535Analyze
TMVDirexion Daily 20+ Year Treasury Bear 3X ETF-3.00US Fixed Income 884,986Analyze
TTTUltraPro Short 20+ Year Treasury (3x) ETF-3.00US Fixed Income 308,632Analyze
TWMUltraShort (2x) Russell 2000 ETF-2.00US Equity 5,403,363Analyze
TYODirexion Daily 10-Yr Treasury Bear 3x Shrs ETF-3.00US Fixed Income 210,162Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 12,652,161Analyze
UDNPowersShares DB US Dollar Index Bearish ETF-1.00Commodities82,261Analyze
WEBSDirexion Daily Dow Jones Internet Bear 3X ETF-3.00US Equity401,196Analyze
YANGDirexion China Bear (3x) ETF-3.00Global Equity6,083,361Analyze
YCSProShares UltraShort Yen ETF-2.00Commodities44,045Analyze
YXIShort FTSE China 50 ETF-1.00Global Equity 33,151Analyze
ZSLUltraShort (2x) Silver ETF-2.00Commodities201,511Analyze


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

2022 © Stock Market MBA, Inc. Terms of use | Privacy policy