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.