BAX Contract

DEFINITION of 'BAX Contract'

A BAX contract is a short-term investment instrument that uses a Canadian banker's acceptance (BA) as its underlying security. The specific BA underlying the contract has a nominal value of C$1 million and a maturity of three months. The contracts are traded on the Montreal Derivatives Exchange.

Also known as a "banker's acceptance contract".

BREAKING DOWN 'BAX Contract'

These contracts are great way for a company to hedge against a rise in interest rates. BAX contracts are becoming increasingly popular because they are a less expensive hedge than their over-the-counter competition, forward rate agreements. BAX contracts are also very liquid, flexible, and do not tie up credit lines.

RELATED TERMS
  1. Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed ...
  2. Front Month

    Used in futures trading to refer to the contract month with an ...
  3. Fixed Income Forward

    A contract to buy or sell a fixed income security in the future ...
  4. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  5. Continuous Contract

    A reinsurance contract that does not have a fixed contract end ...
  6. Assignable Contract

    A futures contract with a provision permitting the contract holder ...
Related Articles
  1. Markets

    Explaining Banker's Acceptances

    A banker’s acceptance (BA) is a way for two unfamiliar parties to transact business on credit.
  2. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  3. Trading

    Intermediate Guide To E-Mini Futures Contracts - Rollover Dates And Expiration

    A contract month is the month in which a futures contract expires. All of the e-mini stock index futures contracts trade on the March quarterly expiration cycle (March, June, September and December). ...
  4. Trading

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
  5. Investing

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  6. Investing

    Banker's Acceptance 101

    A banker's acceptance, a common way of financing international trade activity, provides a relatively safe, short-term vehicle for investors. An acceptance is a negotiable time draft that a bank ...
  7. Financial Advisor

    Divorce and Annuities: What Clients Need to Know

    Divorce can be the most financially devastating event in a person’s life. Here’s what your clients need to know about handling annuities in a divorce case.
  8. Trading

    Beginner's Guide To Trading Futures: The Basic Structure of the Futures Market

    In this opening section, we will take a look at how the futures market works, how it differs from other markets and how the use of leverage impacts your investing. How Futures WorkYou are probably ...
  9. Investing

    Options on Futures

    Options on futures contracts offer another way for day traders to use options. These are traded on the same exchange as the underlying futures contract. Traders should take care to understand ...
  10. Trading

    Beginner's Guide To E-Mini Futures Contracts: E-Mini Specifications

    Each e-mini contract has certain specifications as outlined by its host exchange. Ticker SymbolEach contract has a ticker symbol, or an arrangement of letters representing the specific contract. ...
RELATED FAQS
  1. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  2. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  3. What is a tax-free 1035 Exchange?

  4. Why is the initial value of a forward contract set to zero?

    Discover why the initial value of a forward contract is set to zero; read about financial mathematics and exchange logic ... Read Answer >>
  5. What kinds of derivatives are traded on an exchange?

    Learn about the different types of derivatives traded on exchanges, including options and futures contracts, and discover ... Read Answer >>
  6. What kinds of derivatives are types of forward commitments?

    Learn more about what a derivative is, what a forward commitment is and which types of derivative securities have forward ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center