Inverse ETF List | The Best Inverse ETFs to Trade
Inverse ETF List
What is an Inverse ETF?
An inverse ETF is a type of exchange-traded (ETF) fund designed to deliver returns that are the opposite of an underlying index's performance. In other words, if the index goes down by 2%, the inverse ETF should ideally go up by 2%.
Additionally, there are 2x and 3x inverse ETFs. If you buy a 3x inverse ETF and the index moves up 2%, your 2x inverse ETF should move 6%.
How Inverse ETFs Work
Inverse ETFs achieve their objectives using financial derivatives, such as options, futures contracts, or swaps. These instruments allow the ETF to "short" the market, profiting from a decline in the value of the underlying index.
It's important to note that the performance of inverse ETFs is generally measured over a single day, meaning their returns can diverge significantly from the index when held for longer periods.
Can you lose more than you invest in inverse ETFs?
No, you cannot lose more than you invest in an inverse ETF.
However, due to their daily reset feature, inverse ETFs suffer from time decay, which can erode returns over time, especially in volatile markets.
Holding inverse ETFs for extended periods can lead to significant deviations from the expected performance as gains and losses compound over time.
Is there a Nasdaq inverse ETF?
Yes, the inverse ETFs for the Nasdaq include SQQQ (3x) and PSQ (1x).
Is there a Dow Jones inverse ETF?
Yes, the inverse ETFs for the Dow Jones include SDOW (3x) and DOG (1x).
Which ETF is inverse of the S&P 500?
The inverse ETFs for the S&P 500 include SH (1x), SDS (2x), and SPXS (3x).
What is the inverse ETF for QQQ?
The inverse ETF for QQQ is SQQQ (3x).
Do inverse ETFs pay dividends?
Some inverse ETFs may pay dividends but are not based on the dividends from the index they track.
Why is it bad to hold inverse ETFs?
Holding inverse ETFs for extended periods can be bad because they suffer from decay. Since the funds utilize derivatives, they are constantly rebalancing, and the long-term returns may not reflect the index's returns.
How are inverse ETFs taxed?
Inverse ETFs are always taxed at short-term capital gains rates.
