United States Commodity Funds LLC has launched a new exchange-traded fund designed to provide short exposure to the crude oil market.

The United States Short Oil Fund (NYSEArca: DNO) aims to capture the inverse of the daily return of the front-month West Texas Intermediate crude oil futures contract, as traded on the New York Mercantile Exchange.

On a one-day basis, the fund should mirror the returns of the popular United States Crude Oil Fund (NYSEArca: USO). Over longer time frames, the returns may diverge due to compounding. (For more on the impact of compounding on returns, check here or here.)

DNO will charge 0.60% in annual expenses.

Unlike most leveraged and inverse products, DNO will not use swaps to achieve its exposure. Instead, it will take short positions in the actual underlying futures contracts.

DNO will compete directly with the PowerShares DB Crude Oil Short ETN (NYSEArca: SZO), a short oil exchange-traded note with $27 million in assets under management.

SZO differs from DNO in two ways. First, it tracks a slightly different index: DNO exclusively focuses on the front-month futures contract, while SZO sometimes owns out-month contracts instead. More importantly, while DNO compounds its returns on a daily basis, SZO compounds them on a monthly basis.

The difference between monthly and daily compounding may seem like a technicality, but for long-term holders, the differences can be dramatic.

There are also two products that provide leveraged inverse exposure to the crude oil market: the PowerShares DB Crude Oil Double Short ETN (NYSEArca: DTO), which compounds returns monthly, and the ProShares UltraShort DJ-UBS Crude Oil ETF (NYSEArca: SCO), which compounds returns daily.

The prospectus for DTO is available here.