Bear Market Funds are traded as most “traditional” mutual funds are bought and sold. What makes them different is that they are set up to increase in value as markets fall and decrease when markets rise.  For this reason they are often called Inverse Funds or Short Funds.

For example, when the S&P 500 drops by 1%, an inverse fund, like The Bear Profund, will increase in value by 1%.  A 1% decline in the fund’s value will happen of the S&P 500 rallies by 1%.  You can buy and sell inverse funds for a variety of underlying stock indexes, including the NASDAQ,-100, Russell 2000 and DJIA.  Sector inverse funds are also offered for those anticipating a downturn in, say, real estate, precious metals or energy.

A couple of inverse fund companies also offer double inverse funds.  These funds strive to return a 2% increase for every 1% that the underlying index declines, and vice versa.  The Ultra Bear Profund is an example of a double inverse fund.

These funds reach their desired effect by using leveraged vehicles, like short sales of futures and options contracts.

Inverse funds are mostly used by investors who speculate that the value of an index to fall or by investors who wish to hedge their portfolio against the possibility of a market downturn.