A bear market is when an asset or market falls 20% or more from its recent peak, signalling a broad and sustained period of declining prices. For Australian traders, this can affect everything from ASX 200 CFD positions to forex pairs like AUD/USD — often hitting multiple markets at once during a global downturn.
How a Bear Market Works — A Practical Example
Imagine the ASX 200 is trading at 8,000 points in January. By June, ongoing rate hikes and weak corporate earnings have pushed it down to 6,400 points — a 20% decline. That officially marks the start of a bear market. If you held a long CFD position worth A$10,000 at the peak, your position is now worth A$8,000, a paper loss of A$2,000 before any broker fees or spread costs.
Bear markets can last months or years. The 2008 Global Financial Crisis saw the ASX 200 fall roughly 55% over 16 months. During that period, short-selling and inverse strategies became popular tools, but they carry their own significant risks — especially for traders using leverage.
Why Bear Markets Matter for Australian Traders
Bear markets test your risk management more than any bull run ever will. If you are trading CFDs with leverage, a 20% fall in the underlying asset can wipe out far more than 20% of your margin deposit. ASIC’s leverage limits for retail traders — capped at 30:1 for major forex pairs and 20:1 for major indices — were introduced specifically to reduce the damage leverage can cause during sharp market falls.
Australian traders also need to be aware of margin calls, which become far more common during bear markets. When positions move sharply against you, your broker may automatically close trades to prevent your account going negative. ASIC-licensed brokers are required to offer negative balance protection, meaning you cannot lose more than your deposited funds — a critical safeguard when volatility spikes.
How a broker performs during a bear market matters enormously. Execution quality, server stability, and transparent stop-loss handling can all deteriorate at inferior platforms when volume surges. Choosing an ASIC-regulated broker with a strong operational track record is not just about fees — it is about reliability when markets are most chaotic.
Bear Market vs Correction
A market correction is a decline of 10% to 19.9% from a recent high — sharp, but not yet a bear market. A bear market requires that 20% threshold and usually reflects a deeper shift in economic fundamentals, not just short-term profit-taking. Corrections tend to recover faster, often within weeks, while bear markets can grind lower for a year or more. Both are distinct from everyday volatility, which can see markets swing 1–3% in a single session. For most Australian traders, understanding whether you are in a correction or a confirmed bear market is the more important factor to check before adjusting your position size.
What to Check When Comparing Brokers
- Negative balance protection: Confirm the broker guarantees you cannot lose more than your deposit — this is required for ASIC-licensed retail clients but worth verifying explicitly.
- Margin call and stop-out levels: Find out at what margin percentage the broker will issue a warning versus automatically closing your trades. Lower stop-out levels give you more breathing room during a market drop.
- Short-selling access: Bear markets create opportunities to profit from falling prices. Check whether the broker allows you to go short on ASX 200 CFDs, commodities, and forex pairs without restrictions.
- Execution quality under stress: Read reviews from traders who used the platform during volatile periods. Pepperstone is one ASIC-licensed broker consistently praised for reliable execution during high-volume market events.
- Overnight funding costs: Bear markets can drag on for months. If you hold short CFD positions overnight, swap rates accumulate — compare these carefully across brokers before committing to a long-term bearish strategy.
See our picks for the best CFD brokers in Australia — all ASIC-licensed, all live-tested by our team.
Trading CFDs carries significant risk. 70–80% of retail accounts lose money. ASIC regulated. We may earn commission via links.