The investment market is full of uncertainties. One wrong move and, you will end up losing your game, so, to be on a safer edge, you need to observe the market and, for that first, you need to learn some of its terminologies. Two of which is the ‘Bull Market’ and ‘Bear Market’.These terminologies may remind you of the astrological signs, but in the finance world, they are used to describe the market trends. Bear and Bull terms amplify the market situation in general.
Bull Market refers to a market condition where the prices are rising substantially high, whereas the market where the value keeps on depreciating, we call it a Bear Market.
A Bull market initiates with the exceptional growth in the employment rates and the substantial rise in the country’s economy. In this case, investors tend to believe that this uptrend will be there in the market for a longer time.
Alternatively, the bear market initiates with the downfall in the economy and the rising rates of unemployment. A bear market implies when the market value falls by at least 20% or more. In such scenarios, there is a solid fall seen in the prices of the shares, due to which investors prefer to purchase new shares so that they could earn decent profit in future.
Features Of Bull And Bear Market
You must have heard about the Action and Reaction theory in physics which says that every action has an equal and opposite reaction. In the investment market, it is reciprocal. The market takes action after perceiving the reaction of the investors. In the case of Bull Market, the investors are very optimistic they tend to invest more and more to earn a decent profit. In the Bear market, the investors became cautious, and tend to play safe. They sell their part of shares so and wait for the market to rise again since the outflow of the market increases causes depreciation in the prices.
The stock market and the economy works proportionally. During the Bull market, employment rates are high, people have enough money to invest in the exchanges and, that helps to strengthen our economy. Whereas in the Bear market, unemployment rates are high, people couldn’t afford to invest enough money, which dampens our economy.
What actions should be taken by the investors in each situation?
In the Bear market, the ideal thing you could do is to switch on the safer side, i.e. Fixed Income Securities. To protect yourself from the worst situation, you can definitely opt for short selling. Even after associating too much risk, some investors keep holding the shares. They believe that prices will rise again and, they will cover their loss but, no matter how much the prices will rise they will somehow be left highly affected. This defensive nature would not benefit the investors so, they should go for a short-selling option.
On the contrary, the risk associated with the bull market is comparatively less. Investors should participate actively and invest as much as they can to earn a higher income.
Bull and Bear are the most crucial factor that influences the working of the stock market. Understand these terminologies before taking any action to resist yourself from the loss and the risk. If you understand the market better, there are opportunities through which you can make a profit in both situations.