Key Takeaways - Deepstash
Key Takeaways

Key Takeaways

  • An inverse ETF is an exchange traded fund (ETF) constructed by using various derivatives to profit from a decline in the value of an underlying benchmark.
  • Inverse ETFs allow investors to make money when the market or the underlying index declines, but without having to sell anything short.
  • Higher fees tend to correspond with inverse ETFs versus traditional ETFs.

4

STASHED IN:

5

MORE IDEAS FROM Exploring the Benefits and Risks of Inverse ETFs

Inverse ETFs vs. Short Selling

An advantage of inverse ETFs is that they do not require the investor to hold a margin account as would be the case for investors looking to enter into short positions . A margin account is one where a broker lends money to an investor to trade. Margin is used with shorting—an advanced trading activity.

Investors who enter into short positions borrow the securities—they don't own them—so that they can sell them to other traders. The goal is to buy the asset back at a lower price and unwind the trade by returning the shares to the margin lender.

1

STASHED IN:

5

Understanding Inverse ETFs

Many inverse ETFs utilize daily futures contracts to produce their returns. A futures contract is a contract to buy or sell an asset or security at a set time and price. Futures allow investors to make a bet on the direction of a securities price.

Inverse ETFs' use of derivatives—like futures contracts—allows investors to make a bet that the market will decline. If the market falls, the inverse ETF rises by roughly the same percentage minus fees and commissions from the broker.

1

STASHED IN:

5

What Is an Inverse ETF?

An inverse ETF is an exchange traded fund (ETF) constructed by using various derivatives to profit from a decline in the value of an underlying benchmark. Investing in inverse ETFs is similar to holding various short positions, which involve borrowing securities and selling them with the hope of repurchasing them at a lower price.

An inverse ETF is also known as a "Short ETF" or "Bear ETF."

5

STASHED IN:

8

Deepstash helps you become inspired, wiser and productive, through bite-sized ideas from the best articles, books and videos out there.

GET THE APP:

RELATED IDEA

ETFs vs Index & Mutual Funds

They are all basket of assets you are trading in bulk:

  • Mutual funds are actively managed, meaning their fees are rather high.
  • Index Funds are just tracking a segment of the market. Low fees but are only priced once a day. It's the preferred passive investment strategy. 
  • ETF are like a combination of the two. They are more versatile & usually track industries, commodities etc. ETFs are more akin to equities than to mutual funds. They can be bought like individual stocks. 

STASHED IN:

95

Definition and application

Options are conditional derivative contracts that allow buyers of the contracts (option holders) to buy or sell a security at a chosen price. Option buyers are charged an amount called a "premium" by the sellers for such a right. Should market prices be unfavorable for option holders, they will let the option expire worthless, thus ensuring the losses are not higher than the premium. In contrast, option sellers (option writers) assume greater risk than the option buyers, which is why they demand this premium.

2

STASHED IN:

35

Nasdaq overview

The Nasdaq (National Association of Securities Dealers Automated Quotations) is the oldest and largest electronic stock market globally. All its buying and selling occurs electronically and not on a physical trading floor.

It is the second-largest stock exchange globally based on the market capitalisation of its listed companies.

2

STASHED IN:

28