Investing Assets & Markets Exchange-Traded Funds Leveraged and Inverse Oil and Gas ETFs and ETNs By Mark Kennedy Mark Kennedy Mark Kennedy is an expert in investment and exchange-traded funds. He was an ETF options trader on the Philadelphia Stock Exchange floor and Vice President of Derivatives Trading for Goldman Sachs. Kennedy's trading positions were not limited to the oil ETF but included other ETFs such as the Qs. learn about our editorial policies Updated on March 1, 2022 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their money—and themselves—in crypto, blockchain, and the future of finance and digital assets. She is a financial therapist and is globally-recognized as a leading personal finance and cryptocurrency subject matter expert and educator. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Leveraged Oil ETFs and ETNs Inverse Oil ETFs and ETNs Short-Term, Higher Expenses Leveraged Oil and Natural Gas ETPs Photo: Danial_Abdullah / Getty Images Exchanged-traded funds (ETFs) and exchange-traded notes (ETNs) related to oil and natural gas are some of the most popular types of commodity exchange-traded products (ETPs). Commodity ETPs enable you to hold positions (go long) in commodities—in this case, oil and/or natural gas—by buying a single product that's easily traded on an exchange. These ETPs aim to mimic the return of an index of commodities futures contracts before management fees and other expenses. Note Futures are derivatives—financial instruments that derive their value from other instruments. Futures contracts are agreements to buy or sell a certain asset at a set price on an agreed-upon date. Other ETPs let you buy a basket of oil and/or gas company stocks by buying a single product. They seek to match the return of a petroleum industry stock index before expenses. Leveraged Oil ETFs and ETNs Some ETPs are leveraged, which means they use derivatives and debt to multiply the return of the benchmark they mimic. For example, the Direxion Daily S&P Oil & Gas Exploration & Production Bull and Bear 2X Shares ETF (GUSH) seeks to return 200% of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index each day. Note Leveraged ETPs can provide large returns, but they also involve increased risk. You could lose the entire value of your investment in one day. Inverse Oil ETFs and ETNs Inverse oil and/or natural gas ETFs and ETNs are ways to create short positions (i.e., sell a borrowed stock or share) in those petroleum commodities by buying a single product that's traded on an exchange. The short position is a way of betting on a drop in a market. Here's how these two ETPs work: Inverse ETFs: Use various types of futures contracts to mimic the opposite performance of their underlying benchmark. Their share prices generally correlate to the net asset value of their holdings.Inverse ETNs: Unsecured debt securities that aim to provide the opposite performance of their underlying benchmark. At maturity, if the benchmark they mirror drops 2%, then the inverse ETN would gain 2%. You can make money from inverse ETFs and ETFs by selling them at a higher price than you bought them for. Inverse ETNs' market prices are determined in part by the performance of the underlying index. They are also affected by the perceived creditworthiness of their issuer. You can use these inverse ETPs to inversely track an underlying index or another grouping of investments if you believe its value will fall. You can also hedge against downside risk in similar assets you own when in a long position. Inverse ETPs aim to return the opposite of the underlying benchmark. Additionally, there are also leveraged inverse ETPs that aim to provide two to three times the opposite performance of the underlying benchmark. Note These products can be very risky, because leveraged and inverse products seek daily investment results. The underlying benchmark could drop one day, allowing an investor to profit greatly with a 2x leveraged inverse ETF. It might also increase more than it dropped the next, causing the same investor to lose a multiple of those profits. Short-Term Investments With Higher Expenses The values of leveraged and inverse ETFs and ETNs are typically recalculated every day, along with the financial instruments that make them up. Because of the complex rebalancing involved, these ETPs may not accurately reflect the intended opposite performance of their benchmark beyond that particular day. As a result, they are generally not recommended as long-term investments. In fact, on January 22, 2019, Vanguard, the second-largest provider of ETFs in the world, stopped accepting new investments in leveraged or inverse ETFs, ETNs, or mutual funds. In addition, because of the frequent buying and selling of their underlying derivatives, inverse ETPs usually have higher expense ratios than those of other ETPs. Leveraged Oil and Natural Gas ETPs Below are several leveraged and inverse oil and natural gas ETFs and ETNs that you may be interested in adding to your portfolio. You should take caution and stick to your risk tolerance. Do thorough research before investing in these types of products. Leveraged BOIL: ProShares Ultra Bloomberg Natural Gas ETF (2x) DIG: ProShares Ultra Oil & Gas ETF (2x) ERX: Direxion Daily Energy Bull and Bear 2X Shares ETF (2x) GUSH: Direxion Daily S&P Oil & Gas Exploration & Production Bull and Bear 2X Shares ETF (2x) NRGO: MicroSectors U.S. Big Oil Index 2X Leveraged ETN (2x) NRGU: MicroSectors U.S. Big Oil Index 3X Leveraged ETN (3x) UCO: ProShares Ultra Bloomberg Crude Oil ETF (2x) Inverse DDG: ProShares Short Oil & Gas ETF (-1x) DRIP: Direxion Daily S&P Oil & Gas Exploration & Production Bull and Bear 2X Shares ETF (-2x) DUG: ProShares UltraShort Oil & Gas ETF (-2x) ERY: Direxion Daily Energy Bull and Bear 2X Shares ETF (-2x) KOLD: ProShares UltraShort Bloomberg Natural Gas ETF (-2x) NRGD: MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (-3x) NRGZ: MicroSectors U.S. Big Oil Index -2X Inverse Leveraged ETN (-2x) SCO: ProShares UltraShort Bloomberg Crude Oil ETF (-2x) YGRN: MicroSectors U.S. Big Oil Index Inverse ETN (-1x) The Balance does not provide tax or investment advice or financial services. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Direxion. "Direxion Daily S&P Oil & Gas Exp. & Prod. Bull and Bear 2X Shares." FINRA. "Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors." Vanguard. "Important Information About Leveraged, Inverse, and Commodity Exchange-Traded Products."