Thanks for this explanation.  To put it in really layman's terms, you are using part of your funds to lay a bet that the market will go down.  When the market does go down, you win your bet, and this compensates for the losses you suffer in the rest of your (non-inverse portfolio).  If the market goes up, you lose your bet, but this is compensated for by the gain in the rest of your portfolio.

So basically it is a method of dampening the volatility in share prices, and reducing your overall exposure to risk (and reward).  It allows you to to keep your investment in the market even when you think it is likely to go down in the near term.

Given that much of market volatility is driven my market sentiment rather than real changes in the performance and prospects of the underlying companies, it seems a sensible strategy to adopt - particularly if you think the risks remain on the downside.  

Of course the $Million question is now - is the balance of probability - now on the up or on the downside - particularly in the Euro area.  I remain a bit of an optimist that the Euro area can adjust and prosper at a reduced rate of Growth - whereas the US still has some way to fall before there is any sustained bounce.  Is that similar to your reading?

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