Inverse ETF Risks

What are the Main Inverse ETF Risks?

Inverse ETF RisksInverse ETFs have many different risks, some straight-forward and others probably not fully understood. As such, inverse ETF risks should be carefully evaluated before any purchase. We have attempted to list the main risks involved with these products but the list is not purported to be conclusive. Like any investment, inverse ETFs have their own unique risks. Inverse ETFs may not be for all investors since the they involve the use of derivatives.

We have broken down the list into tracking error, compounding risk, liquidity risk, counterparty risk, regulatory risk and suitability concerns. Another issue is the annoyance of fund splits and reverse splits, which can become a real nuisance if you own options on inverse exchange traded funds. Regulatory risk should also be closely monitored as there is a possibility that some leveraged ETFs, namely the triple or 3x funds, will no longer be able to be purchased without an accredited investor status, as was reported in various outlets.

For a full list of risks please read the prospectus from the fund’s issuer or consult with your financial advisor. Inverse ETF risks include:

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Inverse ETF Risks
Inverse ETF risks should be carefully examined before purchase. Inverse ETFs have substantial risks that may be misunderstood.
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