Bear

What Is A Bear?

A bear is an investor or trader who believes that a market, asset, or financial instrument is heading downward and may attempt to profit from the declining prices.

Deeper Definition

The term “bear” refers to an investor with a pessimistic view of a financial market. Bears believe that a market will drop in value and may take short positions to profit from declining prices.

When a financial market experiences a continuous price decrease, it is known as a “bear market.” A bear market occurs when stock prices fall, usually at least 20% from their recent highs. Generally, it may indicate that the economy is experiencing a downward trend or that many investors are uncertain whether stock prices will go higher.

Bulls are the opposite of bears. A bull is an investor with an optimistic view of the market. Bulls believe that the market will experience an upward movement, so they purchase securities hoping to sell them later at a higher price to make a profit. An investor cannot be a bear or a bull at all times. Instead, they will be bearish on some markets and bullish on others.

Bears who want to profit from a market in a downward trend employ a technique known as “short selling.” Short selling is an advanced trading strategy where traders open a position by borrowing shares of a stock or other assets they expect will decrease in value. The goal of short selling is to sell the shares to buyers willing to purchase at the current market price and then buy back at a lower cost to pay the debt and pocket the difference as profit. Only experienced traders make use of the technique.

Bear Example 

The stock price of a company is currently trading at $22. A news leak about a scandal involving the company’s CEO, and James, a stock market speculator, believes that the news will cause the company’s stock price to go into a downward trend. So he enters a short position to profit from the decline. James’ prediction comes to pass within a couple of days as the company stock prices drop from $22 to $16.72,  earning James a 24% profit.