It is common to come across foreign jargon in the world of investing and to be able to manage your way around a stock market it is essential to know what those terms mean.
Here, we simplify the difference between a bear market and a bull market:
What is a bear market?
The bear market has unfavourable conditions. Mostly the market falls below 20% than its previous peak. This is the time when the trend falls down, and so does the market. There is a constant fall in the share prices. As there will be no profits in the company, this will lead to the retrenchment of the employees, which eventually leads to unemployment.
There is very little purchasing power among individuals in this period. Mostly in a bear market, people tend to sell. The demand in this period is lower than usual. A sharp decrease in the price causes recession. Also, it is a great opportunity to buy the stocks that are on sale, as it is a risk which can be carried on for a longer time.
What is a bull market?
A market which has favourable conditions is a bull market. The system of the country’s economy is sound and bouncing above 20% than its previous downtrend—the activity of buying the stock and selling at the highest peak, which earns higher profits. The market is greatly affected by the investor's attitude and investment decision. The scenario in the bull market is where the prices are elevated. At this particular time, share prices are particularly high.
In this period of the bull market, employment opportunities tend to increase. This is a time when investors are confident about their money invested as the span of bull market is quite long. But this excessive price rise can lead to inflation due to constant demand and supply. When it shows the highest peak, gradually it could be last, and slowly it could lead to recession.
Bear v/s Bull
Investors behave with different attitudes and psychology with changes coming to the stock market. In a bull market, people or organisations try to obtain maximum profits. They try to buy securities in large quantities but do not sell them.
In a bear market, most investors lose confidence and do not buy much. They try to move the money out of the market. This generally leads to a rise in an outflow.
In a bull market, consumers have high purchasing power and are willing to spend it. This strengthens the economy.
In the case of a bear market, consumers do not spend, and eventually, stock prices fall.
What investors should know?
Investors tend to observe the market carefully. They need to take advantage of the prices when rising in a bull market, i.e., selling the stocks when they are at their peak. In a bear market, losses are bound to happen, so one should cautiously invest. Both markets have a huge influence on investments. One needs to take time and understand the market well before investing. In the long run, positive returns are guaranteed.
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