Do you know one quick way to trade an index is to buy index ETFs? With index ETFs, you can gain exposure to multiple companies included in the index. One common misconception is that index ETFs are only suitable for those who expect the stock market to rise. In fact, if you expect the stock market to fall, you can profit from the decline as well by investing in index ETFs. This is because there are two types of index ETFs—long and short.

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Key Takeaways

• How do long and short index ETFs work?
• How to filter long/short ETFs quickly on Webull?

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If investors are feeling the entire market will go up

David is confident in the stock market and plans to make a long-term investment. He does not have much experience in investing and is not confident in looking for quality stocks on his own. Therefore, he decides to buy long ETFs on the S&P 500 index. As he is not a risk taker, he limits the scope to 1x leverage. Finally, he buys 100 shares of XYZ that seeks 100% of the performance of the S&P 500 index.

If the S&P 500 goes up by 1%, his ETF shares will go up about 1% as well. In contrast, if the index slips by 1%, his ETF shares will decline by about 1%.

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If investors are feeling the entire market will go down

Damon, on the other hand, worries that the stock market would go down in the short term. He tries to profit from the downside of the stock market, but shorting an individual stock could be too risk-concentrated. Therefore, he spreads risks by buying 100 shares of ABC that seeks -100% of the performance of the S&P 500 index.

If the S&P 500 goes up by 1%, his ETF shares will go down about 1%. If the index slips by 1%, his ETF shares will go up by about 1%.