What Is Hit the Bid?
Traders use the term “hit the bid” to sell at the maximum price a buyer is prepared to pay for a security or asset. The “bid-ask” spread is the difference between the most excellent buyer offer and the lowest selling offer. A seller will hit the bid to trade instantly at that price.
Compare “hit the bid” to “lift the offer.”
Hit the Bid Method
Hit the bid means selling a security at its bid price. The price is the highest among rival options for security.
A trader will bid if the price is right or they need to sell soon. The most effective way to hit the bid is to use a market order, but you can also use a sell limit order at the current bid price to avoid underbidding.
An investor’s willing price and volume bid are vital for market liquidity. Level 1 quotes are usually provided with bid sizes. A $50 bid price and a $500 bid size allow you to sell 500 shares for $50. If you have 500 shares to sell and the best bid is 100, a market order will fill the first 100 at that price, then sell the remaining 400 at lower prices until the order is completed.
Price quotes display the national best bid and offer (NBBO) from all listed exchanges. The best bid price may be from another exchange or area.
Hit the Bid. Example
A fund manager sells garbage bonds. The portfolio manager solicits bids for an insufficient bond from a broker. The broker summons purchasers and quickly bids $75 for the bond. Brokers inform sellers of bids. Seller rejects.
The seller rejects another $74 market maker proposal. The broker returns to the seller with a $74.50 bid. The seller meets the bid and sells. Hitting the bid also means lifting it. Buying the trash bond from the portfolio manager lifts the broker’s offer.
Conclusion
- Traders “hit the bid” by selling at the market price.
- The bid is a buyer’s most excellent security offer.
- Market order sellers that accept the best bid will hit the bid.
