October 20, 2014

Short ETFs Explained By Seeking Alpha

Short ETFs are great new way to enable the average investor to get in on short selling stocks without all the hassle of knowing what the heck they’re doing. For some that can be bad, but for most it’s finally an easy way to get in on the action of making money even if the market as a whole is going down.

Exchange-traded funds are all the rage right now and for good reason. They trade on the open market just like shares of a company, but give you diversity like a mutual fund. The latest product in this ever expanding investment craze is the offer of “Short ETFs.”

Short ETFs are called such because they try to give the investor the opposite of the index or sector that they’re shorting. Seeking Alpha has an explanation of short and long funds straight from the CEO of ProFunds.

Basically, he says that having a fund of short sells on equities is a very risky practice. Instead, shorted funds through ProFunds tries to get the same effect by shorting futures contracts and swap agreements. Now I’m not exactly sure how that works, but it also sounds risky.

However, these funds seem to trend just as they should so who am I to think it sounds so difficult. One interesting shorted ETF is through ProShares and is the Ultrashort QQQ (QID). Now ultrashorts try to provide the investor with double the opposite of whatever it may be tracking, in this case, the NASDAQ 100. These can be a bit riskier and bit more erratic with huge moves from day to day depending on how the markets are trading.

Overall, these exchange-traded funds give the investor just another option to make money in any type of market, up or down.