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What is a 'Bear Position'

Bear position is a term representing a short position applied to a financial security.

BREAKING DOWN 'Bear Position'

A bear position is the inverse of a bull position. A bear, or short, position is a bet against the price of a trade or investment rising or staying flat. A bear position wants to profit by predicting that prices will fall for certain securities in the market. The seller that takes the bear position, or the short position, is called a short seller, and will borrow securities, hoping for prices to decline. If the price falls, the investor will profit on the change in price. If the price goes up, the investor or trader will take a loss and may be exposed to unlimited losses because the price of the security has the potential to continue to rise. Contrast this position to the long position, in which the value of the security can move against the investor or trader’s position only a specific amount, to zero. Using alternative strategies when initiating a bear or short position can work to mitigate some of these risks.

There are a number of alternative ways to take bear positions. Examples of this include buying a put option, which would entitle the buyer to sell a portion of their security within a fixed period of time, or buying inverse ETFs, an exchange-traded fund built from a variety of derivatives, allowing the buyer to profit from decline in expected performance.

Comparing the Usage of 'Bear' in Market Terminology

The use of a bear and a bull are commonly applied to market discussions and reflect the way that the animals attack. A bull will thrust its horns upward, while a bear throws its paws downward. These upward or downward positions track market shifts.

A bear market, for example, is a market condition in which the price of securities decline and dwindling investor confidence leads to a self-sustaining, downward spiral in the stock market. This means that investors will expect more losses as the general pessimism increases. Although figures vary, a downturn of 20 percent or more over a two-month period from a peak in broad market indexes can be considered entry into a bear market.

The meaning of a dollar bear is, once again, reflective of negative outlooks for the market. In this case, it’s an investor’s outlook for the U.S. dollar against other currencies, expecting a decline. A bear fund is a mutual fund that, amid market downturns, predicts higher returns for investors.

A covered bear is a strategy where a trader makes a short sale on a long position. This bear spread strategy aims to gain the maximum profit possible when the value of the security falls.

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