Short Selling for the Average Investor

Short selling has traditionally been a technique reserved for the expert traders and investors, but a new set of ETFs released by ProShares may quickly change the landscape. Now, average investors can do more than just sit on the sidelines in a bear market – they can “safely” purchase ETFs that will enable them to profit from declines in the marketplace without being forced to open a margin account.

ProShares ETFs are intended to give the average investor the ability to short sell various industries, sectors, and indexes by allowing them to do so through an ETF vehicle. They are available in two flavors: (1) Short ETFs that are non-leveraged; and (2) UltraShort leveraged ETFs that double exposure. The Short and UltraShort ETFs do not require a margin account and can even be traded in your IRA and some 401(k) accounts. This is possible because losses in these ETF structures limit losses to the amount you initially invest.

ProShares UltraShort ETFs are available for a variety of sectors, from real estate to energy. Here are some of the popular ones:

• UltraShort Russell 2000 (TWM) – Are you bearish on the overall market?
• UltraShort Financials (SKF) – Are you bearish on the financial sector because of credit and subprime concerns?
• UltraShort Real Estate (SRS) – Are you bearish on the real estate sector amid the subprime crisis?
• UltraShort MSCI Emerging Markets (EEV) – Do you think the emerging markets are overheated and due for a retracement?
• UltraShort China (FXP) – Do you think China’s run is coming to an end?

Overall, these ETFs are a great way for investors to bet on market declines without risking a short sale. They also represent a way for investors to make such bets in mediums that were traditionally unable to purchase bets on a decline, such as IRAs and some 401(k)s. In the end, investors should consider purchasing these ETFs in a bear market that they believe is headed down even further.

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