What is a BULL and a BEAR MARKET for beginners?

April 21, 2009 - PRLog -- Finance people will be familiar with the terms ‘bull’ and ‘bear’ but for those who aren’t from this line, the former refers to the market situation when it is on a high, while the latter refers to the condition when the market is down.

Bull market refers to an up trend that investors are convinced will continue for quite sometime and is indicated by a constant increase in the prices of stocks. Also, the country’s economy is at its strongest and employment levels at its highest during the period of bull.

Contrarily, a bear market is the complete reverse of bull to the extent that investors hope that it wouldn’t last long!

There is a simple way of coming to know whether the market is facing bull or bear. Strong demand + weak supply = bull market. Stock prices rise due to increase in competition. The converse stands true of bear market.

The market condition also determines the economic status pf the country. While a bear market is reflective of a weak economy as companies are inept at producing the desired profit because consumers are not spending enough. However, in a bull scenario consumers have more than their share of capital to spend driving the company to generate more profits thus strengthening the economy.

Nevertheless if you wish to make money in a bull market, the easiest and simplest way is by selling short. Many investors have made, and continue to make, money in a downslide market. In a margin system you would buy the shares with the intention of selling it later. By selling short, you sell shares with intent to buy the same later when prices go down further. Doing so, you expect the share price to decrease.

Short selling enables you to enter the market as a seller and transform into a buyer as prices drop. In short selling you basically sell a share that you do not ‘own’. Your broker (if you have one) “borrows” the stock from someone else’s margin and sells the same on your behalf. You continue to profit till you buy back the same at a lower price.

But, please remember the following before venturing into selling short:

   * You have to open a margin account with your broker
   * As you buy on margin you are required to follow the rules of margin account with your broker
   * The lender is to be paid dividends or any rights declared over the course of the loan by the shorter
   * The stock you wish to short must be available to borrow with you maintaining at least 50% or more of the stock’s value in your account

Source: http://www.learn-trade.com/

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