Bear CD

Posted in Finance, Accounting and Economics Terms, Total Reads: 1165

Definition: Bear CD

A bear CD is a certificate of deposit whose returns are inversely proportional to the value of an underlying market index or stock. Thus, if the index decreases, the return on the bear CD increases. It is called a bear CD because the investor believes the index is going to fall and hence makes the investment.

A bear CD can be broadly used for 2 purposes-

  1. a. Speculation:

If an investor expects the market to fall, he might invest in this CD to gain advantage.

  1. b. Hedging

If an investor holds a long position in certain stocks and wants security from any kind of market fluctuations, he might purchase this CD such that his combined position is squared whether the market goes up or down.

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