How Do Short ETFs Operate and what are the risks vs. typical "long" ETF?
When you're shorting a stock or an asset, you're essentially selling something you borrowed in the market with the hopes of being able to buy it back at a lower price and the differential is your profit.
If my understanding is correct, a short position is inherently riskier than a long position even without leverage. Because technically, the biggest loss an asset or stock can have is -100% but the potential upswing is theoretically "infinite" (think Crypto or Amazon or Berkshire Hathaway since IPO). So the lose-win possibility is -100% / Infinite.
If you do a short however, this possibility is inverted, your highest possible gain is 100% and biggest possible loss is "infinite".
If that is correct then this risk translates into Short ETFs as well but are only mitigated by diversification of short positions?
But from a theoretical standpoint, the win/loss odds are still flipped in a short ETF (100% max gain vs "infinite" max loss)?
How are the risks mitigated? I assume some ETFs would also make use of options and derivatives in addition to actual short positions.
Cheers!
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