traders regularly refer to ‘bull’ and ‘bear’ markets and strategies. It sounds like a strange way to refer to currency trading, so what exactly do these terms mean?
Think of a bear swiping down in an attack and you’ll easily be able to picture the downward view of a bear market or spread. It indicates that general investment confidence is down in terms of buying, and traders are likely to sell more than buy. Within the relevant economy, employment may be high and GDP may be stalled, with the country’s stock market falling.
Even in a bear market there can be profits to be found on the foreign exchange market. The general strategy in a bear market is to go short, or make short-term trades to make the most of a downward trend. Traders themselves can also be referred to as ‘bears’ if they make decisions on the likelihood of a falling trend.
The upward swipe of a bull’s horns reflect the optimistic expectations of a bull market or spread. In a bull market, investment confidence is high and traders are likely to buy rather than sell. Within the relevant economy unemployment rates will be low, GDP will be growing and the stock market may be on a downward trend.
, where a specific currency is rising in value during a bull market, going long with trades (i.e. taking a buy position) can potentially provide a return as values increase. Traders referred to as ‘bulls’ are likely to invest in long trades.
Where did the terms come from?
trading uses all sorts of odd terminology, but it’s believed that the reference to bull and bear trading was first used in 18th Century England. Several centuries earlier, ‘bear-jobbers’ would sell bear skins before they had received these products with the expectation that the value would later drop and they could buy them back at a lower price. Their profit would come from the difference in selling and buying price, much like in trading Forex
. When the term came into common use it’s thought that the bull reference was developed as an appropriate inverse phrase, perhaps due to bulls and bears traditionally being pitted against each other in fighting rings.
Whatever the exact origins, the terminology certainly provides a quick and easy way to define market or trading trends.