Bear market

A bear market is a prolonged decline. The image is a bear swiping downwards. Its opposite is a bull market. Someone who expects prices to fall is "bearish".

Definitions vary by market

In stock markets, a decline of 20% or more from a recent peak is a widely used rule of thumb, with smaller falls of around 10% called corrections. These thresholds are conventions used by the financial press, not official definitions.

Forex works differently. A currency pair rarely falls 20%, and every move in a pair is a rise for one currency and a fall for the other. A "bear market in EUR/USD" is the same thing as a bull market in the dollar against the euro. So FX traders tend to talk about a bearish trend on a given timeframe rather than an official bear market.

Worked example

Suppose an index peaks at 5,000 and falls to 3,900 over seven months. That is a 22% decline, which by the stock-market convention counts as a bear market. If it then rallies 10% to 4,290, that is still 14% below the old high: rallies inside bear markets are common and often sharp.

Practical note

Bear markets tend to come with higher volatility, wider spreads in stressed moments and moves into safe-haven currencies. Being able to go short with a CFD does not make falling markets easier to trade. Sharp counter-trend rallies can hit stops quickly, which is why position sizing matters as much in a falling market as in a rising one.