Stock Questions, What is an Inverse ETF?
What is an inverse Exchange Traded Fund or ETF and what role do they play in terms of strategic investing in the stock market?
To understand what inverse ETFs investors first must know what ETFs, or exchange traded funds are. An exchange traded fund is a fund publicly traded on an exchange that replicates the performance of an individual index, sector, or group of equities. ETFs typically have lower management fees than mutual funds alongside better liquidity. A popular ETF is the QQQQ which tracks the performance of the NASDAQ 100.
While a regular ETF mirrors the performance as closely as possible as if the investor was buying long, a inverse ETF does just the opposite in that is tracks the opposite performance of the index being tracked as if the investor was going short. For example PSQ is the inverse ETF of the NASDAQ 100 index; whenever the NASDAQ 100 falls in price PSQ gains in price.
Further Reading: View a list of 40 Great Inverse ETFs.
Great work adding such basic tutorials to the site. Very helpful to newbies…