In financial trading, a ‘bear market’ is a general decline in the stock market over a period of time. For a trader, spread-betting can be an invaluable method of trading in these conditions, as it allows you to profit from a falling market as well as a rising one.
With financial-spread betting, you can take a position on a range of instruments including indices, shares, commodities and forex, irrespective of the direction in which the markets are moving.
Black Monday In financial trading, October 19th 1987 will be forever remembered as Black Monday – the day that stock markets around the world crashed and the Dow Jones fell by nearly 23% in just 24 hours.
Though drastic when viewed in isolation, the loss in investment value was experienced most acutely by traders who closed out their positions and bailed out of the market completely on the day of the stock market crash. In fact, the markets did begin to climb back from that low point and the Dow Jones actually entered positive territory, rising by 0.26% before the year was out.
Spread betting in a bear market One important aspect of surviving a bear market is preparation. Around the time of Black Monday, traders who employed technical analysis and charting knew that bear markets tended to occur every few years, and consequently chose to keep their spreads open. This would prove to be the right decision. Ultimately, if a trader opened a spread bet on the first trading day of the year, January 2, and was able to keep it open throughout Black Monday all the way to December 31, it is possible that they would not have lost a penny.
Similarly, many traders opened positions with the markets at their lowest point, clearly realising the opportunity that would present itself as the markets recovered over the subsequent years. This underlines the value of understanding the movements of the markets on which you are spread betting.
One of the key advantages of this type of trading over standard share trading is that it allows you to profit in a falling market as well as a rising one – a feature which clearly lends itself to trading in a bear market. If a spread bettor is able to interpret the signs and then react quickly enough, a bear market does not necessarily mean a disastrous loss.
By learning about the risks associated with trading and how to manage them, you can ensure that your spread bet strategy is in the best possible shape to react the next time a bear market comes around.
Learn more about spread betting on the financial markets with a free City Index seminar. Check their website for details.
Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.