Exchange-traded fund that is traded like a stock, but moves inversely to the index that it is tracking. If the index declines then the inverse ETF would move in the opposite direction thus increasing potential profits. Inverse ETFs use swaps and futures; swaps predominate in inverse ETFs because of their flexibility and utilize short selling. Inverse ETFs may cause investors with taxable accounts to experience a lower after-tax return because they are unable to minimize the distribution of capital gains.