A market correction on the stock exchange occurs when the price of a single stock or a stock market index falls between 10% and 20% from its previously reached high. However, if the price falls by more than 20%, the stock or index is then in a bear market which is to be seen as more negative and long lasting. A market correction usually does not last very long, but it can have a positive effect and is usually considered healthy. This is because a market correction often takes the ‘nervousness’ and also the ‘pressure’ out of the market, which can subsequently lead to lower volatility in the price development of the underlying. Therefore, market corrections should be seen as something useful, as they can contribute to a long-term positive and sustainable performance of the underlying.
