What is a Bear CD?

Conventional Certificates of deposits are investment engines that provide an investor with a constant rate of interest for the speculated of predetermined time frame calculated on the principle investment. The returns are available on maturation of a CD. However   the money is locked for the duration of the CD and is inaccessible to the investor. This can be at a disadvantage to the investor if the interest rates based on the rising trend of the market change. Even though the prevailing interest rates are higher, the investor is only eligible for the predetermined interest .This puts the investor at a disadvantage.

In certain scenarios the economy seems sluggish and the overall value of securities diminishes. In this unstable market the investor stands confused as to his next move in terms of investment option. He would look for an option where his investment would lie safe at the same time adding to their portfolio. Should he invest in a traditional CD and take the risk of loosing a higher return should the market crash or should he invest in any other financial scheme? The answer to this question is provided by the bear CD

It is a certificate of deposit in which the interest rates obtained fluctuate inversely to the value of the underlying market index meaning you gain a higher rate of interest if the market value declines. Let us assume a situation where you can predict a crash in the market; in such a case you can invest in a bear CD. Consider the predetermined rate of interest for this CD is 3% and the market value decreases during the tenure of your CD your interest rate would increase proportionally to the vale of the underlying market index. Hence you would be the beneficiary if the interest rates were to decline.

A bear CD can be used as a hedge .Where one is creating an establishment in one market to negate the price fluctuations of another market with the aim of minimizing risk. The investor is betting on the direction in which is assets are moving. The character of this investment is bearish as the investor betting on the fall in the stocks. The bear CD may have the property of a speculation meaning the purchase of an asset that has not been deemed safe through analytical statistics. The bear CD can have either of these two characteristics. This type of CD should be considered if the investor has in-depth knowledge of the stock market and its trends.