What is the connection between animals and trade?

What is the connection between animals and financial markets? In this beginner’s article, you will learn about animal symbolism in trading and investing, including:

  • Bulls and Bears
  • Doves and Hawks (Doves and hawks)
  • Rabbits and Tortoises
  • whales
  • Black swans
  • Animal spirits

We’ve all seen and been moved by adorable pictures of pets like kittens and puppies on social media. Although financial markets have a reputation for being business-oriented, they have long had a deep connection with animal symbolism.

While pets in social networks represent warm and gentle feelings, animal symbols in the investment markets are associated with radically different emotions.

As a beginner, it will not take you long to get interested in the financial media and follow the news to stay up to date with the latest developments in the forex and stock markets. Most market sentiment articles are about bulls and bears, so let’s start with those.

Bulls and bears in financial markets (bulls and bears)

A strong upward trend in the economy is influencing investor sentiment, which means more optimism and confidence in the markets. In some cases, a bull market turns into a “bull run” where market sentiment seems to be the first to throw horns, demonstrating a healthy appetite for risk.

Conversely, a sharp decline in the economy creates emotions of fear, and sometimes panic. The animal that represents these emotions is the bear, and when the market turns bearish, there is a sell-off and investors’ appetite for risk disappears.

Bull and bear have become shorthand for describing the prevailing sentiment in the markets and can also be equated with buyers and sellers. This struggle between buyers and sellers leads to the rise and fall of various instruments in the financial markets.

Bulls and bears fight in the field (order book, straight to market) while other species flee, which brings us to hawks and doves.

Hawks and doves

The hawk represents a central bank that seeks to increase lending by raising interest rates and preying on its prey, inflation. A hawk in monetary policy occurs when prices rise too fast and fuel inflation, forcing central bankers to take action to stop it.

The dove is a much less aggressive bird than the hawk and when used in financial markets represents periods of monetary policy when inflation is low or normal. Dovish monetary policy is associated with looser lending conditions and is also called “accommodative” monetary policy.

Black swans

Black swans are so rare that their name is used to describe highly unusual events in the trading and investment markets. Examples of black swans include the sharp collapse of the EURCHF when the Swiss National Bank (SNB) pulled out of an agreement to maintain a floor between the Swiss franc and the euro. Black swans can also mean geopolitical events such as wars, revolutions, pandemics, and other major disruptions in the world economy.

It is important to understand that the events in the “black swan” market are caused by a mass reaction of fear and panic. In hindsight and when the dust settles, the catalyst that sparked the mass response can often mean a shift in the economy. A good example is the phasing out of the currency peg, which seems to be disappearing soon as modern economies need more flexibility than ever.

Rabbits and tortoises

Rabbits and turtles are not mentioned in the media as often as bulls and bears or hawks and doves. This may be because rabbits and turtles represent a type of approach to investing and trading, rather than temporary emotions such as fear or optimism.

Rabbits tend to make deals or investments quickly, while Tortoises take a slower, long-term approach, moving towards their financial goals rather than rushing.

whales

We talked about land and air animals, but what about the sea? Whales represent the “big hands”, i.e. institutional investors and traders, mega-banks, governments, central banks and hedge funds.

When a large institution makes a trade or investment, it can change the direction of the market. Examples of this can be seen in the interventions of central banks in the foreign exchange market, where they buy their national currency to support it during periods of vulnerability.

When hedge funds sell an instrument short or long, they have so much buying power that they can move the market.

animal spirits

No, the term “animal spirits” does not refer to ghosts of bulls and bears, but they can be scary.

The latter describes the pervasive emotions that grip investors and traders at any given time in the markets. These emotions are usually associated with panic during black swan events or euphoria when the economy is doing so well that the trader feels like every investment or position is a success.

The animal spirit causes extreme emotions in the markets and can lead to sharp changes and fluctuations in asset prices. These changes can be described as volatility, but in the case of animal spirits, the variations can go far beyond a healthy value of volatility, turning into wild swings until the phenomenon subsides.

What is the reaction to animal spirits? Always use smart risk management techniques. This topic will be covered next week, so don’t forget to check back regularly for our article titled Economics News for Beginners.

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INFORMATION ABOUT ANALYTICAL MATERIALS:

This content does not contain, and in no way should be construed as containing, investment advice or recommendations, or an offer or solicitation to trade in financial instruments. Please note that this marketing communication is not a reliable indicator of any current or future performance as circumstances may change over time. Before making any investment decision, you should seek advice from independent financial advisors to ensure that you fully understand the risks involved.

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