I have been looking to invest in the stock market and while there are plenty of options to invest as long as the market keeps going up, my options to cover or even make up for my losses in the event of a switch to a bear market are somewhat limited.
As a new customer, my broker won't allow me to open a margin account. So selling stock short is not an option for at least a few months.
At first I looked into inverse ETFs and leveraged inverse ETFs but they have a few issues. To me the most important shortcoming is that they fail to track their nominal target accurately. So I could have my shares and my inverse ETF go down or the ETF go up but severely lagging the market.
Then I came across inverse ETNs and they look like a great deal. I get perfect inverse index tracking and I can buy smaller lots to balance my small portfolio more accurately.
I can see how ETNs aren't really investing, but then neither are shorts. I also understand that the bank behind them can go belly up and then I lose any money I threw into their bucket. And I acknowledge that I may be unable to sell/buy them at a given price due to low volume.
However, I am left wondering where the fear comes from. As I see it, at worst I can only lose 100%+commissions out of my original "investment" and that makes them infinitely less risky than options and margin.
Additionally, I don't know for other exchanges, but the local stock exchange requires that all listed ETNs come from an A- rating or better financial institution with $5 billion+ net worth, and that they have at least 5 years to go until maturity.
Given that, is the risk for ETNs on a different order of magnitude compared to say, regular stock? Are they even less safe at all? Should I worry more about ETNs than some CEO announcing his company's phones cause cancer? Am I missing something?