How short ETFs work

Short ETFs, or inverse or bear ETFs, are exchange traded products that hold a short position in an underlying index. They profit if the index declines in price.

Instead of directly holding a short position in the index the ETFs use options, futures and swaps. They are an attractive alternative to short-selling because no margin accounts is needed. Furthermore, they may be likely to be cheaper than short-selling because no lending fees and interest must be paid. Besides that, risks as regulatory changes, squeezes or buy-ins are evaded. Instead, only the administration fees must be paid.

Research has shown that short ETFs work better for hedging in the short term than in the long term.