Is it possible to short etfs

More recently, the fund has done what GameStop short-sellers wanted, rising and falling with the shares of the video game retailer. But in a supposedly dying industry, the ETF has done quite well. Betting against stocks can be lucrative, but it comes with high risks. Even when you do your short-selling through a diversified ETF, you have to be aware of the losses you can suffer if you're wrong.

A squeeze for these ETFs is unlikely. Yet the gains that these ETFs have given their shareholders lately only accents just how dangerous short-selling can be.

Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Average returns of all recommendations since inception. Cost basis and return based on previous market day close. Investing Best Accounts. Stock Market Basics. Stock Market. Industries to Invest In. Getting Started. Planning for Retirement. Retired: What Now? A short seller believes that the price of the ETF will drop, so they sell for the higher price now, then close out their position once the price of the ETF has actually fallen.

Another way to take a bearish position on an ETF is to buy a put option. If you're correct, you get to buy the ETF at the lower, true value and then sell those shares at the higher price guaranteed by the put option. This is similar to short-selling, but there isn't an obligation to execute the trade. Trading options and short selling are risky, and depending on the kind of trade you're making, there's theoretically unlimited risk.

That's why inverse ETFs were created. That is less risky, because rather than buying or selling hypothetical future trades, you're buying an asset. That's certainly no cause for celebration—you will lose the money you spent on the ETF—but at least you won't be on the hook for additional funds. While inverse ETFs are generally less risky than options trading, they're still much riskier than traditional index ETFs. The U. The Balance does not provide tax, investment, or financial services or advice.

The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Office of Investor Education and Advocacy. Charles Schwab Corporation. Actively scan device characteristics for identification. Use precise geolocation data.

Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. An inverse ETF creates this effect by taking positions in multiple securities so that the daily gain or loss is the inverse of the traditional index, as in the preceding example.

Inverse ETFs are generally only intended to provide the inverse return on a daily basis. Over the long term, investors can expect some disconnect between gains and losses on a traditional ETF and the gains and losses on the corresponding inverse ETF , due to compounding returns and losses on an increasing or decreasing ETF price.

Beyond one month though, the same disconnect typically occurs. The main benefit of an inverse ETF is that it allows investors to quickly and easily take advantage of falling asset prices. While on a daily basis an inverse return on the underlying index is expected, over the longer term the return on ETFs can vary drastically from expectation.

Invesors wanting specific dollar-for-dollar gains as an asset price drops will want to go short. As long as the ETF continues to decline, your unrealized profit will continue to mount. You also may receive margin calls on your trading account if the ETF moves against you goes up. Shorting is a viable strategy for day traders, swing traders and longer-term traders alike.

Inverse ETFs are excellent day-trading candidates, as many are based on the daily inverse price performance of an underlying index. Therefore, inverse ETFs are typically used for short-term trading opportunities, or to take advantage of sustained downtrends in major asset classes where sizable gains are likely, even in spite of a possible disconnect.