A short exchange traded fund (EFT), or inverse ETF, is a type of exchange traded fund which aims to rise in value if its benchmark falls in value.
Short ETFs work by utilising short-selling, futures contracts and other derivatives to create an investment that moves in an inverse direction to its benchmark. For example, if the FTSE 100 increased in value, an inverse ETF which tracks the FTSE will decrease in value, and vice versa.
Investing in a short ETF is a form of going short, but negates the risk of unlimited losses often associated with other short trades, as the maximum loss is the amount you have invested in the ETF.
