The Battle on Wall Street
When diving into the world of finance, two creatures that take the spotlight are the bulls and bears. These animal references symbolise the opposing forces of upward and downward trends in the market, and their longstanding rivalry dates back to the 18th century. But have you ever wondered how these terms came to represent the market conditions we know today?
The Origin Story: The Bears' Advantage
The Oxford English Dictionary (OED) suggests that the financial usage of "bear" predates that of "bull." It is likely derived from the idiom "to sell the bear's skin before one has caught the bear." In the past, bearskin traders, also known as jobbers, would pre-sell their merchandise before actually receiving it. They hoped for a market downturn, as it would allow them to make a larger profit on the transaction. This practice of selling something before obtaining it is reminiscent of the speculative nature of the bear market.
The Mysterious Emergence of the Bull
On the contrary, the origin of the term "bull" in relation to an upward-trending market is less certain. Some theories propose a connection to the historical practices of bull- and bear-baiting. It is also said that the fighting styles of these animals played a role in choosing the respective terms. While a bear swipes down with its paws, a bull thrusts upwards with its horns. This analogy reflects the opposing market movements represented by these creatures.
The Shifting Focus: From Speculators to Market Conditions
Although bear and bull initially referred to the speculators themselves, the terms "bear market" and "bull market" came into usage in the late 19th century to describe market conditions favourable to investors. A bear market is characterised by a decline in prices and a pessimistic sentiment, while a bull market signifies a rise in prices and an optimistic outlook. Over time, more derivatives emerged, such as a bear raid, where investors attempt to profit from or trigger a stock's falling price, and a bear squeeze, which describes the financial pressure bear speculators face when the market unexpectedly rises.
The Objective of the Game: Scoring Pips and Points
Seeing trading as a game, the objective for participants is to capture pips and score points. The bulls and bears are the primary players, each striving to score against the other. Bulls score points when the market achieves new highs or higher highs, signalling an upward trend. To be a bull, you must enter a buy position first and then exit by selling. In this game, the market movement is described as "up," and your position is referred to as "long" or "bullish."
Conversely, bears aim to score points when the market reaches new lows or lower lows, indicating a downward trend. To be a bear, you must enter a selling position first and then exit by buying. The market movement is described as "down" or dipping, and your position is termed "short" or "bearish." The rivalry between the bulls and bears reflects the constant battle for dominance in the financial markets.
Market Moves: A Glimpse of What's to Come
The market is a dynamic entity that can move in various ways, including up, sideways, or down. Understanding how these moves impact trading strategies is vital for success in the financial game. In future modules, we will delve into the intricate details of each type of market movement, equipping you with the knowledge to navigate these conditions effectively.
The Exciting World of Bulls and Bears
The financial game between bulls and bears is an exhilarating journey for traders and investors. Understanding the origins of these terms and the dynamics they represent provides valuable insights into market behaviour. By aligning your strategies with the prevailing market conditions, you can enhance your decision-making and increase your chances of success in this captivating world of finance. Stay tuned for our upcoming modules where we explore market moves in great detail, helping you gain a deeper understanding of this gripping game.
