Bear CD

AAA

DEFINITION of 'Bear CD'

A certificate of deposit whose interest rate fluctuates in inverse correlation to the value of an underlying market index. In other words, the interest rate paid on the CD increases as the underlying market index decreases in value.

INVESTOPEDIA EXPLAINS 'Bear CD'

This type of CD is used for two main purposes: speculation or hedging. An investor may want the safety of a CD but with the market exposure of a bear CD. This CD is bearish because the investor is betting that the market will fall during the life of the CD.

This type of instrument is also used to hedge actual market positions. If an investor has a long position that is highly correlated to the underlying market index, he or she may invest his or her excess cash in a bear CD, which can offset losses in the market investment.

RELATED TERMS
  1. CD Ladder

    A strategy in which an investor divides the amount of money to ...
  2. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Underlying

    1. In derivatives, the security that must be delivered when a ...
  5. Speculation

    The act of trading in an asset, or conducting a financial transaction, ...
  6. Market Index

    An aggregate value produced by combining several stocks or other ...
Related Articles
  1. Certificates Of Deposit
    Bonds & Fixed Income

    Certificates Of Deposit

  2. Are CDs Good Protection For The Bear ...
    Insurance

    Are CDs Good Protection For The Bear ...

  3. Getting To Know The Money Market
    Options & Futures

    Getting To Know The Money Market

  4. Bear Funds: A Bullish Stance On Bad ...
    Options & Futures

    Bear Funds: A Bullish Stance On Bad ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center