Canadian Securities Course (CSC) Level 2 Practice Exam 2025 - Free CSC Level 2 Practice Questions and Study Guide

The primary difference between Inverse Exchange Traded Funds (ETFs) and traditional ETFs lies in their investment objectives and structure. Inverse ETFs are specifically designed to produce returns that are the opposite, or inverse, of the performance of a particular benchmark index. This means that if the index declines in value, the Inverse ETF aims to increase in value by a corresponding amount.

Traditional ETFs, on the other hand, typically aim to track the performance of a benchmark index directly, meaning their returns generally follow the movement of the market they are designed to mimic. This fundamental difference in strategy is what sets Inverse ETFs apart, enabling them to function as tools for investors seeking to profit from declining markets or hedge against downside risk.

While it is true that Inverse ETFs may involve higher management expense ratios (MER) due to their more complex strategies, and some may utilize leverage, the defining characteristic remains their goal of achieving returns that are the opposite of the index they track. Hence, the aim to achieve an inverse return effect is what primarily distinguishes them from traditional ETFs.

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