How to Make Money in a Falling Market – Use Inverse Funds


Over the past couple of weeks, we have seen stock markets around the wall fall dramatically in value. This has mainly been driven by fear of a slowdown in the worlds second largest economy – China. Many individual investors have during this phase panicked as they have seen their share portfolios drop in value by over 10%.

Many individual investors fear these falls in stock prices as they don’t know how to profit from them. The idea of using Put Options to make profits in a falling market seems too complicated and most would rather sit on the sidelines rather than make money during these times.

So what should an unsophisticated investor do…?

If you have no idea how Put Options work, it is best to abstain from them. Your next best alternative is to use inverse funds. Inverse funds or inverse exchange traded funds are designed to perform as the inverse of whatever index or benchmark it is designed to track. Therefore if you have an inverse FTSE100 fund, you make money as the FTSE 100 goes down.

Inverse funds can be a good way to make money in down markets.




 

Here is a list of some inverse funds:

FTSE

  • ETFS 3x Daily Short FTSE 100
  • FTSE 100 Short Daily UCITS ETF    (XUKS)
  • GO UCITS ETF Solutions plc          (SUK2)

Nasdaq 100

  • Short QQQ           (PSQ)
  • UltraShort QQQ    (QID)

Dow Jones industrial Index

  • Short Dow 30            (DOG)
  • UltraShort Dow 30     (DXD)

S&P 500

  • Short S&P 500           (SH)
  • UltraShort S&P 500    (SDS)

Euro STOXX50

  • Euro STOXX 50 Short Daily UCITS ETF   (XSSX)

DAX

  • Short DAX Daily UCITS ETF          (XSDX)

 

Note: before buying any inverse funds, you should always look at the fees. The fees or expense ratios of inverse funds tend to be higher than standard index funds since the funds are by their nature actively managed; these costs can eat away at performance.

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