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
Alternatives1
Commodities11
Global Equity 17
US Equity58
US Fixed Income11
Total98

Inverse ETPs use different amounts of leverage:

Leverage factorCount
-3.0025
-2.0042
-1.0031
Total98

Inverse ETPs by type:

ETP TypeCount
ETF85
ETN13
Total98

Average daily trading volume by category:

CategoryAverage Trading Volume
Alternatives5,059,411
Commodities7,231,918
Global Equity 24,516,883
US Equity306,118,524
US Fixed Income2,764,538
Total345,691,274

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 94,899,912Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 45,355,492Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 34,436,100Analyze
QIDProShares UltraShort (2x) QQQ ETF-2.00US Equity 21,358,164Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 16,238,053Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 15,865,866Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 14,457,366Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 9,610,859Analyze
JDSTDirexion Daily Junior Gold Miners Index (2x) Bear ETF-2.00Global Equity 9,345,925Analyze
PSQProShares Short QQQ ETF-1.00US Equity 9,108,945Analyze
DUSTDirexion Daily Gold Miner Stocks Bear (2x) ETF-2.00Global Equity 8,208,330Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF-3.00US Equity 6,496,684Analyze
SOXSDirexion Daily Semiconductor Bear (3x) ETF-3.00US Equity6,020,231Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity5,997,058Analyze
TECSDirexion Daily Technology Sector Short (3x) ETF-3.00US Equity 5,302,233Analyze

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 Equity94,843Analyze
BNKDMicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN-3.00US Equity14,399Analyze
BNKZMicroSectors U.S. Big Banks Index -2X Inverse Leveraged ETN-2.00US Equity367Analyze
BZQProShares UltraShort MSCI Brazil ETF-2.00Global Equity 870,602Analyze
CHADDirexion Daily CSI 300 China A Share Bear 1x Shares ETF-1.00Global Equity25,103Analyze
CROCProShares UltraShort Australian Dollar ETF-2.00Commodities1,319Analyze
DDGShort Oil & Gas Stocks ETF-1.00US Equity10,611Analyze
DFVSIPATH US TREASURY 5 YR BEAR ETN-1.00US Fixed Income2Analyze
DGZPowerShares Gold Short ETN-1.00Commodities2,962Analyze
DOGProShares Short Dow30 ETF-1.00US Equity 1,214,489Analyze
DRIPDirexion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF-3.00US Equity 4,588,346Analyze
DRVDirexion Real Estate Bear (3x) ETF-3.00US Equity252,727Analyze
DUGUltraShort (2x) Oil & Gas ETF-2.00US Equity 106,185Analyze
DUSTDirexion Daily Gold Miner Stocks Bear (2x) ETF-2.00Global Equity 8,208,330Analyze
DWSHDorsey Wright Short ETF-1.00US Equity165,507Analyze
DXDProShares UltraShort Dow30 ETF-2.00US Equity 2,734,866Analyze
DZZDB Gold Double Short ETN-2.00Commodities14,912Analyze
EDZDirexion Daily Emerging Market Bear (3x) ETF-3.00Global Equity390,418Analyze
EEVUltraShort (2x) MSCI Emerging Markets ETF-2.00Global Equity28,124Analyze
EFUUltraShort (2x) MSCI EAFE ETF-2.00Global Equity 1,561Analyze
EFZProShares Short MSCI EAFE ETF-1.00Global Equity 34,827Analyze
EMTYProShares Decline of the Retail Store ETF-1.00US Equity21,767Analyze
EPVUltrashort FTSE Europe (2x) ETF-2.00Global Equity 7,623Analyze
ERYDirexion Energy Sector Bear (2x) ETF-2.00US Equity 264,354Analyze
EUFXProShares Short Euro ETF-1.00Commodities542Analyze
EUMProShares Short MSCI Emerging Markets ETF-1.00Global Equity183,305Analyze
EUOUltraShort Euro (2x) ETF-2.00Commodities74,848Analyze
EWVProShares UltraShort MSCI Japan ETF-2.00Global Equity 5,438Analyze
FAZDirexion Financial Bear 3x Shares ETF-3.00US Equity 3,862,735Analyze
FNGDBMO REX MicroSectors FANG+ Index 3X Inverse Leveraged ETN-3.00Global Equity 4,827,118Analyze
FNGZMicroSectors FANG+ Index -2X Leveraged ETN-2.00Global Equity 17,965Analyze
FXPUltraShort (2x) FTSE China 50 ETF-2.00Global Equity44,927Analyze
GLLUltraShort (2x) Gold ETF-2.00Commodities158,735Analyze
GNAFMicroSectors FANG+ Index -1X Inverse ETN-1.00Global Equity 18,815Analyze
HDGERanger Equity Bear ETF-1.00US Equity 982,180Analyze
HIBSDirexion Daily S&P 500 High Beta Bear 3X ETF-3.00US Equity 1,240,951Analyze
JDSTDirexion Daily Junior Gold Miners Index (2x) Bear ETF-2.00Global Equity 9,345,925Analyze
KNABMicroSectors U.S. Big Banks Index Inverse ETN-1.00US Equity332Analyze
KOLDProShares UltraShort DJ-UBS Natural Gas ETF-2.00Commodities858,924Analyze
LABDDirexion Daily S&P Biotech Bear 3X ETF-3.00US Equity5,997,058Analyze
LACKDirexion Daily Consumer Staples Bear 3X Shares ETF-3.00US Equity7,261Analyze
MUTEDirexion Daily Communication Services Index Bear 3X Shares ETF-3.00US Equity2,891Analyze
MYYShort MidCap 400 ETF-1.00US Equity21,390Analyze
MZZUltraShort (2x) MidCap400 ETF-2.00US Equity15,330Analyze
NRGDMicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN-3.00US Equity 31,873Analyze
NRGZMicroSectors U.S. Big Oil Index -2X Inverse Leveraged ETN-2.00US Equity 89Analyze
PASSDirexion Daily Consumer Discretionary Bear 3X Shares ETF-3.00US Equity 27,269Analyze
PSQProShares Short QQQ ETF-1.00US Equity 9,108,945Analyze
PSTProShares UltraShort 7-10 Year Treasury ETF-2.00US Fixed Income 16,634Analyze
QIDProShares UltraShort (2x) QQQ ETF-2.00US Equity 21,358,164Analyze
REKProShares Short Real Estate ETF-1.00US Equity33,456Analyze
REWUltraShort (2x) Technology ETF-2.00US Equity 39,198Analyze
RWMShort Russell 2000 ETF-1.00US Equity 1,680,657Analyze
RXDProShares UltraShort Health Care ETF-2.00US Equity 6,808Analyze
SBBProShares Short S&P SmallCap 600 ETF-1.00US Equity 10,117Analyze
SBMProShares Short Basic Materials ETF-1.00US Equity804Analyze
SCCProShares UltraShort Consumer Services ETF-2.00US Equity1,689Analyze
SCOUltraShort (2x) DJ-UBS Crude Oil ETF-2.00Commodities3,486,196Analyze
SDDUltraShort (2x) SmallCap 600 ETF-2.00US Equity 24,719Analyze
SDOWUltraPro Short Dow30 (3x) ETF-3.00US Equity 9,610,859Analyze
SDPProShares UltraShort Utilities ETF-2.00US Equity2,162Analyze
SDSUltraShort (2x) S&P 500 ETF-2.00US Equity 16,238,053Analyze
SEFProShares Short Financials ETF-1.00US Equity 35,767Analyze
SHProShares Short S&P 500 ETF-1.00US Equity 14,457,366Analyze
SIJProShares UltraShort Industrials ETF-2.00US Equity8,662Analyze
SJBProShares Short High Yield ETF-1.00US Fixed Income112,117Analyze
SKFUltraShort (2x) Financials ETF-2.00US Equity 119,138Analyze
SMDDUltraPro Short MidCap 400 (3x) ETF-3.00US Equity40,703Analyze
SMNUltraShort (2x) Basic Materials ETF-2.00US Equity11,355Analyze
SOXSDirexion Daily Semiconductor Bear (3x) ETF-3.00US Equity6,020,231Analyze
SPDNDirexion Daily S&P 500 Bear 1x Shares ETF-1.00US Equity 210,646Analyze
SPXSDirexion Daily Large Cap Bear (3x) ETF-3.00US Equity 45,355,492Analyze
SPXUProShares UltraPro Short S&P500 ETF-2.00US Equity 34,436,100Analyze
SQQQProShares UltraPro Short QQQ (3x) ETF-3.00US Equity 94,899,912Analyze
SRSUltraShort (2x) Real Estate ETF-2.00US Equity235,015Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF-3.00US Equity 6,496,684Analyze
SSGUltraShort (2x) Semiconductors ETF-2.00US Equity 27,636Analyze
SVXYProShares Short VIX Short-Term Futures ETF-1.00Alternatives5,059,411Analyze
SZKProShares UltraShort Consumer Goods ETF-2.00US Equity1,668Analyze
TAPRBarclays Inverse US Treasury Aggt ETN-1.00US Fixed Income16Analyze
TBFShort 20+Year Treasury ETF-1.00US Fixed Income 706,252Analyze
TBTProShares UltraShort 20+ Year Treasury (2x) ETF-2.00US Fixed Income 1,641,585Analyze
TBXProShares Short 7-10 Year Treasury ETF-1.00US Fixed Income 15,160Analyze
TECSDirexion Daily Technology Sector Short (3x) ETF-3.00US Equity 5,302,233Analyze
TMVDirexion Daily 20+ Year Treasury Bear 3X ETF-3.00US Fixed Income 213,147Analyze
TTTUltraPro Short 20+ Year Treasury (3x) ETF-3.00US Fixed Income 54,383Analyze
TWMUltraShort (2x) Russell 2000 ETF-2.00US Equity 2,584,047Analyze
TYBSDirexion Daily 20+ Year Treasury Bear 1x Shares ETF-1.00US Fixed Income 826Analyze
TYODirexion Daily 10-Yr Treasury Bear 3x Shrs ETF-3.00US Fixed Income 4,416Analyze
TZADirexion Daily Small Cap Bear (3x) ETF-3.00US Equity 15,865,866Analyze
UDNPowersShares DB US Dollar Index Bearish ETF-1.00Commodities187,685Analyze
WEBSDirexion Daily Dow Jones Internet Bear 3X ETF-3.00US Equity236,127Analyze
YANGDirexion China Bear (3x) ETF-3.00Global Equity504,219Analyze
YCOMProShares UltraShort -2x Communication Services Select Sector ETF-2.00US Equity400Analyze
YCSProShares UltraShort Yen ETF-2.00Commodities2,304Analyze
YGRNMicroSectors U.S. Big Oil Index Inverse ETN-1.00US Equity 25Analyze
YXIShort FTSE China 50 ETF-1.00Global Equity 2,583Analyze
ZSLUltraShort (2x) Silver ETF-2.00Commodities2,443,491Analyze


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

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