Bear Closing

DEFINITION of 'Bear Closing'

Purchasing a security, currency, or commodity in order to close a bear position. Bear closing is a strategy designed to profit from falling prices and may be used when an investor sells assets that it does not possess, known as a bear position.

BREAKING DOWN 'Bear Closing'

Investors who hold a bear position hope that the price of a security, currency, or commodity will fall, allowing the investor to cover or close a position that was opened when the investor sold a security, currency, or commodity that was not in the investor’s possession. The difference between the price that the investor sold the security, currency, or commodity at and the price at which the investor purchased the security, currency, or commodity is the profit or loss.

The key to a successful bear closing is falling prices. The more dramatic the fall in prices, the more profit that the holder of a bear position would gain. The ability to drive down prices depends on the investor’s ability to affect market prices, which is often dependent on the financial resources the investor has available. Holders of smaller positions benefit when other investors start selling a security, currency, or commodity, either through from a concerted effort or because of fear of further falling prices.

Closing a bear position requires an investor to purchase the security, currency, or commodity that was shorted. Bear closing can result in a loss if bullish investors recognize that the price of a security, currency, or commodity has fallen too far relative to its value. In this situation, bullish investors may purchase assets in high enough volume as to squeeze the profitability of a bear position.