Short Selling

Unlike buying stocks, short selling a number of shares means that an investor is expecting a drop in price. You agree to buy a stock at a later date, and the difference between the higher current price and the lower future price creates a profit.

Combining the Two

A reverse ETF combines short-selling with exchange traded funds. A buyer will see a Reverse ETF perform in the opposite direction of the stocks that comprise it: a big gain will see a decrease in ETF value, and a big loss will see a gain in ETF value.

Advantages

Reverse ETFs can be used to hedge positions, meaning investors can use them to limit the impact of a loss in other stock positions. They can also be used to short sell a group of stocks, rather than doing so for each company.

Disadvantages

References

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