A bull market is an extended period in which prices across a market or instrument trend higher; a bear market is an extended period in which they trend lower. Market convention dates a bear market from a fall of roughly 20% below the most recent peak. That threshold is a convention, not a regulatory definition.
Market state, trade direction and the words bullish and bearish
Three separate things are often merged. A market state describes what prices have already done over months or years; a trade direction describes a single position; and the adjectives set out in bullish and bearish describe one participant's reading at one moment. Rallies lasting weeks occur inside bear markets and falls occur inside bull markets, which is why the state on its own is not a trade signal.
The 20% convention and the arithmetic behind it
The convention is arithmetic measured from peak to current price, not a forecast, and it is applied inconsistently: some sources use closing prices, others intraday extremes, others require the decline to persist for a set number of days. If an index peaks at 4,500 and later trades at 3,600, the fall is (4,500 − 3,600) ÷ 4,500 = 20%. Returning to the peak from 3,600 requires a rise of 900 ÷ 3,600 = 25%. The recovery percentage is always larger than the decline percentage because it is measured from a smaller base. A long index CFD held through that move carries an unrealised loss of 900 index points multiplied by the contract size, plus overnight financing for every day the position stays open; a short position held through the 25% recovery carries the mirror-image loss. The label attached to the market protects neither direction.
How a market state appears on an index CFD
An index CFD prices off the underlying index, so the same peak-to-current arithmetic applies to the position, except that the exposure is funded by margin. Where leverage is used, ESMA retail limits apply: 20:1 on major indices and 10:1 on non-major indices, alongside 30:1 on major currency pairs, 20:1 on non-major pairs and gold, 10:1 on other commodities, 5:1 on individual shares and 2:1 on cryptocurrencies. Falling markets usually come with wider spreads and larger opening gaps, so orders can fill further from the last traded price than in calm conditions. Slope can be read on the chart — the lesson on trendlines covers how — but the classification itself is retrospective: a bear market can only be dated after the 20% fall has already happened.
Calculator: size an index position against your account before you open it with the position size calculator.
