What are Bull and Bear Markets?

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Before we go into the different types of markets in the stock market, don’t you think it’s right to understand it first. Let’s not wait anymore – it’s always good to be strong at the foundation of any concept. So, first things first, we’ll find out what the stock market is. The stock market collects exchanges and venues where buying and selling of shares publicly happen. These financial activities are held through institutionalized formal exchanges, and they can be physical or electronic. These are marketplaces that are defined under a set of regulations. 

Both terms – that is, stock market and stock exchange are used interchangeably. A stock exchange is generally a subset of the stock market. If one trades in the stock market, they buy and sell shares on one of the stock exchanges, which is part of the stock market. Every country or particular region has one or more exchanges that make up its stock market. 

The stock market lets many buyers and sellers meet, interact and make transactions – similar to a general marketplace, except where they deal with securities. A stock market enables price discovery of share corporations and serves as a barometer for the overall economy. Because the number of stock market participants is large, one can be assured of fair prices and a high degree of liquidity as various market participants compete for the best prices. 

Understanding the Stock Market

A stock market is a regulated and controlled market. Since it brings together hundreds or even thousands of market participants who want to buy and sell shares, it ensures fair pricing practices and transparency in transactions. Before, the stock market used to issue and deal with paper-based physical share certificates, but in today’s internet age, the stock market operates electronically.

In simple words, these stock markets give a secure and regulated environment where the market participants can make transactions in shares with 100% confidence and zero operational risks. While they operate under defined rules as mentioned by the region’s regulator, the stock market acts like a primary market and a secondary market. 

Being a primary market, the stock market lets companies issue and sell shares to the population for the first time through an initial public offering. These assets companies raise the necessary capital from the investors. It means that a company can divide itself into shares and sell those shares to the public at a price. 

There has to be a marketplace where shares can be sold to make this complete. If everything works according to the plan, the company can sell the shares at a certain price each and collect the fund they need. Investors will be getting the company’s shares, and they can expect to hold it for preferred durations and anticipate it to rise in price and other potential incomes in the form of dividends. The stock exchange plays the facilitator for this process and gets a fee for its service. Now that we know this much – it’s only right to understand the different states of this market, to understand the basics of stock market. So here, we will speak about the bear and bull markets within the stock market. 

What is a Bull Market?

1. Definition: 

 A bull market is a certain market condition, and here prices continue to rise. You must know well that markets follow two swings in general, and they are an upswing where the prices rise and the downswing where the prices fall. The upswing will increase and indicate the formation of a bull market. This means a bull swipes up with horns ready to attack. 

2. How does a Bull Market Work?

A bull market lasts until the prices have risen for quite a Long, and investors have begun to believe that the prices will continue increasing. An investor’s belief in the stock price influences the price itself, and it is a self-fulfilling prophecy. It means creating Markey circumstances. It results in higher prices because the investor is causing the price to rise. 

When the price fails to decrease over time, then the investor comes into a start of irrationalism. They will also start to bid prices above the actual underlying value and overvalue their investments. This makes an asset bubble, and the prices rise until the supply of the asset resists any more rise. An investor begins to panic and sell, the bubbles burst, and the price falls.

If the price falls 10% or less, it is known to be a correction. At 20%, the investor mourns the Bull Market as the bear has started. Here we will speak about the bear market to understand them both.

What is the Bear Market?

1. Definition:

A Bear Market is when the market goes through a prolonged price fall or decline. It says that the condition of securities has fallen 20% or more from the very recent highs, and it’s mostly considered negative to the investors. A bear market is often coming together with the fall in overall markets or indices, but the single security or commodity can also be in a bear market; it goes to 20% or more over some time. Bear Markets are known to be bear markets if they go on for two months or more. Bear Markets are also accompanied by general economic twists with upward trending bull markets.

2. How does a Bear Market Work?

The stock prices will reflect future expectations of the cash flows and profit from companies. As growth and expectations are dashed, and prices decline, fear and risk to protect themselves from the downside lead to a prolonged price decrease, creating a bear market.

On average, markets in the bear territory fall at least 20% from their high. But 20% is an arbitrary number and a benchmark. Here, investors are more risk-averse than risk-seeking. This can last for months. Sometimes even years. 

These are the two major markets of the stock market today. There are more to them, such as:

● Rabbits

● Tortoise 

● Snails

● Chickens

● Pigs 

● Ostriches 

● Sharks

● Whales

● Sheep 

These are some of the other markets you might not have heard of.

Conclusion

Now, you have got to understand that this market creation and the names it gets are from the emotions and reactions of the investors and how they act towards the market and buying and selling.

Read Also: 5 Ways A Tax Accountant Will Help You To Be Compliant

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