Stock prices often drop. With an inverse leveraged ETF, like ProShares UltraShort QQQ, you can make money when this occurs. This fund, with ticker QID. goes up 2% for each 1% the Nasdaq 100 index drops.

Intro

A geared ETF, QID uses 2x leverage to modify its returns. It is based on the Nasdaq 100. The ^NDX index fund tracks the Nasdaq 100, a collection of 100 corporate stocks. ProShares, which maintains QID, opens futures contracts.

And: The QID fund holds short positions on Nasdaq 100 futures contracts. It also has short equity swap agreements.

The NASDAQ-100 is an index of 100 companies. It includes companies from most industries except ones in the financial sector. This makes it helpful for avoiding financial companies. The QQQ fund also tracks the NASDAQ-100.

This index includes companies from a broad range of industries with the exception of those that operate in the financial industry, such as banks and investment companies.

Shorting

What is shorting,

or short selling,

in the stock market? A short is an agreement you make with another party. You agree to borrow an asset (such as a stock or index fund ETF share) and pay for it at a strike price.

Caution: When shorting, there is a cost associated with borrowing. This is the same as with borrowing money for personal use.

Also: When you borrow a stock to short it, you will not receive any dividends. This cuts into your profit and increases risk.

When shorting, if the borrowed asset decreases in value, you will end up making money. You will buy it (in the future) for the reduced price, not the current high price. This results in a profit.

However: If you speculate wrong, you will lose money. The QID fund operates essentially by using short sales.

Good idea

Shorting is betting against a stock,

or with QID,

the Nasdaq-100 index. If you believe the index will drop in value, buying shares of QID may be a good idea. If a big stock (such as Apple) will drop, the index may likely also drop.

Events: Even current events, such as the tapering of quantitative easing in 2013, may be a good moment to acquire shares of QID.

Also: Other events, such as failures in government to reach a budget agreement, may be good times to buy a position in QID.

Sometimes, you may believe the entire stock market is overvalued. This could occur if taxes are raised by government. Other conditions, such as health care costs, may also interfere.

Tip: These broad-market trends may be easier to exploit for financial gain on a fund like QID instead of single stocks.

Expense

As with other ProShares funds, the expense ratio of QID is high. It is currently (in 2013) 0.95% a year. This means the maintainers of the fund take almost 1% of the fund assets each year.

And: They use this money to help maintain the fund, and also pay their salaries and other business expenses.

Short-term

It is probably not a good idea to hold many shares of QID in anything except a short term. They tend to drop in value over the long term. This will not help your portfolio performance.

To emphasize why QID is a poor choice for long-term holding, we use the Yahoo Finance site. We determine the average return of QID over the last year, three years, and five years.

Best years: In 2008, QID returned 76.47%. So it almost doubled in value in the midst of the financial crisis.

So: If you can predict a financial crisis, like that of 2008, a fund like QID is a helpful tool.

Summary

The stock market,

and the ETF part of it,

is enormously complex. Some investment vehicles, like QID, are small but sometimes useful. QID should only be held briefly, as by day traders, or other speculators with market foresight.