What is the relationship of animals to the financial markets? In this article, you will learn more about animal symbolism in trade and investment, including:
- Bulls and bears
- Doves and hawks
- Rabbits and turtles
- black swans
- animal instincts
We all know cute pictures of pets like cats and puppies on social media and we think they are cute. Although the financial markets have a reputation for being all about badass trades, they also share a long-standing and deep affinity with animal tokens.
While pets symbolize feelings of warmth and comfort on social media, completely different emotions are associated with animal symbols in the investment markets.
As a beginner, you will soon adapt to the financial media and follow the news to keep abreast of the latest developments in the forex and stock markets. Most articles on market sentiment refer to bulls and bears, so let’s start with these animals.
Bulls and bears in the financial markets
A strong economic upward trend is affecting investor sentiment, leading to increased optimism and confidence in the trade and investment markets. In some cases, a bull market develops into a bull market where market sentiment appears to be raising the horns and showing a good appetite for risk.
On the contrary, a severe economic downturn sometimes provokes feelings of fear and panic. The animal representing this sentiment is the bear, and when the market turns bearish, mass selling occurs as investors’ appetite for risk wanes.
The terms bull and bear have become shorthand to describe the prevailing mood in markets and can also be equated with buyers and sellers. Pushing and attracting buyers and sellers can be seen in the rise and fall of various instruments in the stock and forex markets.
Bulls and bears fight on the ground, while other labels rise in the air and lead us to hawks and doves.
Hawks and doves
The hawk represents a central bank bent on tightening lending by raising interest rates and catching its reward – high inflation. Tight monetary policy occurs when prices rise too quickly, fueling inflation, and forcing central bankers to take action to discourage it.
The pigeon is a much less aggressive bird than the hawk and when used in the financial markets it represents periods of low or normal inflation in monetary policy. Prudent monetary policy is associated with easy credit terms and is also known as “accommodative” monetary policy.
black swan – black swan
The black swan is so rare that the name is used to describe very unusual events in the trading and investment markets. An example of the black swans is the sudden collapse of the euro against the Swiss franc when the Swiss National Bank withdrew from the agreement to peg the Swiss franc to the euro. The black swan can also be associated with geopolitical events such as wars, revolutions, epidemics and other massive upheavals in the global economy.
The bottom line about black swans in the markets is that they are caused by a mass reaction of fear and panic. In hindsight, when the dust settles, the catalyst that started the mass reaction can often mean an upturn in the economy. A good example of this is the gradual extinction of currency bonds, which appear to be dwindling as modern economies require more flexibility than ever before.
Rabbits and turtles
Hares and turtles are more often portrayed in the media compared to bulls and bears or hawks and doves. Perhaps this is because rabbits and turtles represent some kind of investment and trading approach rather than a fleeting emotion like fear or optimism.
Rabbits tend to get in and out of businesses or investments quickly, while tortoises take a slower, longer-term approach, approaching their financial goals slowly rather than rushing.
We’ve talked about animal species on land and in the air, but what about the sea? Whales are the giants among institutional investors and traders, in other words, major banks, governments, central banks and hedge funds.
When such a large organization does trade or investment, it can change the direction of the market. An example is the foreign exchange interventions of central banks, which buy their national currency to prop it up in times of weakness.
When hedge funds sell short positions or take a long position in an instrument, they have enough buying power to move the market as well.
No, the term “animal spirits” does not refer to the spirits of bulls and bears, but it can be frightening.
“Animal spirits” describe an overwhelming feeling that grips investors and traders at certain times in the markets. These feelings are usually associated with panic over black swan events or euphoria when the economy is doing so well that every investment or trade appears successful.
Animal spirits are extreme emotional states in investment markets and can lead to large-scale shifts and movements in asset prices. These changes can be called volatility, but in the case of animal spirits, changes in the price of assets can go beyond the healthy meaning of volatility and spin into wild fluctuations until the phenomenon ends.
What is the correct answer to animal spirits? Always use prudent risk management techniques. This will also be the topic for next week, so be sure to check out our regular article “Trading News for Beginners”.
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This material does not constitute and should not be construed as investment advice, an investment recommendation, or an offer or solicitation of any transaction in financial instruments. Please be aware that such items are not reliable predictions of current or future developments as conditions are subject to change. Before making any type of investment, you should consult an independent financial advisor to ensure that you have a proper understanding and assessment of the risks involved.