WHAT IS Bear Closing
Bear closing is a way to close a bear position, or short position. Bear closing is a way to make a profit when prices are falling, and is used when a trader or investor sells shares it doesn't yet own.
BREAKING DOWN Bear Closing
Bear closing means buying a security, commodity or currency that has already been sold at a higher price.
Bear position is also called short position, or shorting a stock. Bear position allows a trader or investor to sell a security, currency or commodity at a high price without actually owning that financial instrument yet. After the trader or investor sells the instrument at a high price, they wait for the price to fall and then buy the instrument at that lower price, having already sold it to someone else. Investors and traders who hold a bear position hope that the price of a given financial instrument will drop so that they can cover the position, or close the position that they opened by selling the security, commodity or currency that they didn't own yet.
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. If the price does not go down, the trader or investor still has to purchase enough of the security, commodity or currency to cover the amount they already sold to someone else; they could lose a significant amount of money if the price doesn't go down and they have to buy at either the same or a higher price than they sold at. The difference between the price the investor or trader sold and bought at is the profit or loss on the trade.
Completing a Bear Closing
To complete a bear closing successfully, the price of the security, commodity or currency must fall. The trader or investor is hoping that the price falls significantly in order to make a large profit. If the investor can affect market prices to drive down the price, this gives them a better chance at a larger profit, so a successful bear closing is easier to complete for a trader or investor with a large enough position to affect the market. At the same time, an investor who has enough resources to cover a poor bear closing that results in a loss can afford to continue making bear trades. An investor with fewer resources, however, should not attempt bear trades because it could wipe them out financially.