What is a market correction?

Correction: A fall of about 10 percent or more from a peak. Happens regularly and is normal for markets.

After a period of rising, prices sometimes drop back a good deal. If that is about 10 percent or more from the top, it is called a correction. At 20 percent or more people usually speak of a bear market.

Corrections happen regularly, often several times in ten years. They can last a few weeks or a few months.

In hindsight it is easy to point out a correction. At the time itself, nobody knows whether the fall will stop or continue.

Example
An index peaks at 1,000 and drops to 880 in a few weeks. That is a fall of 12 percent, so a correction. If you had 10,000 euros in a fund that tracks that index, it is worth 8,800 euros at that moment.

Watch out
A correction can turn into a bigger fall. There is no fixed rule for how deep or how long it will be.

Read more in the guide Why markets sometimes fall without anything really happening.

Learn it step by step
In the free Academy you learn terms like this in short lessons, with a certificate for every level.
Take the free lesson