Inverse ETF.
In plain English
An inverse ETF, sometimes called a short or bear fund, is built to deliver the opposite of an index's daily return, so it rises when the market falls. It uses derivatives to do this and, like leveraged funds, resets every day. That daily reset means it does not simply mirror the index over time: held for weeks or months, an inverse fund can lose money even during a market decline because of compounding and decay. It is a short-term hedging or trading tool, not a way to bet against the market over the long run.
01Why it matters
Inverse ETFs are marketed as a simple way to profit from or hedge a downturn, but the daily reset means they erode over time, so knowing that guards against holding them too long.
02The math, step by step
You buy an inverse fund expecting a month-long slide. The index does drift down over the month, but a series of up-and-down days causes the fund to lose value anyway, because each day's reset compounds against you.
03What this is NOT
An inverse ETF is NOT a buy-and-hold short. Its daily reset causes decay, so over weeks or months it can lose money even when the index falls, unlike simply being short the index.
04Receipts
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