What Is Hit the Bid?
Let me explain what 'hit the bid' means in trading. It's when you, as a trader, agree to sell at the bid price—that's the highest price a buyer is willing to pay for a security or asset. You need to understand the bid-ask spread, which is the gap between that highest buyer price and the lowest seller price. If you're looking to sell right away, you'll hit the bid to make the deal at that price.
This contrasts directly with 'lift the offer,' where you're buying at the seller's asking price instead.
Key Takeaways
- Hit the bid means that you sell at the prevailing bid price in the market.
- The bid is the highest price that a buyer is willing to pay for a security.
- You'll hit the bid if you're willing to sell at the best bid price using a market order.
How Hit the Bid Works
When you hit the bid, you're selling a security to another party at its bid price, which is the highest among competing offers for that security.
You might do this if you think the price is attractive or if you need to sell quickly. The best way to hit the bid is by entering a market order to sell, though you could also use a sell limit order set at the current bid to ensure you don't go lower.
Beyond just the price, the amount or volume of the bid matters for gauging market liquidity. You'll see bid sizes displayed with level 1 quotes. For instance, if the bid is $50 for 500 shares, you can sell up to 500 at that price. But if the best bid is only for 100 shares and you have 500 to sell, your market order will fill the first 100 at that price, then the rest at lower prices as it goes.
Tip
Keep in mind that price quotes often show the national best bid and offer (NBBO) from all exchanges where the security is listed. This means the best bid could come from a different exchange or location, so check that for the optimal price.
Example of Hitting the Bid
Consider this scenario: You're a portfolio manager with a junk bond to sell. You call a junk bond broker to get bids. The broker reaches out to buyers and gets an initial bid of $75, which they pass to you, but you decline.
Then a market maker bids $74, and you decline again. Later, the broker comes back with $74.50, and this time you hit the bid, selling at that price. On the flip side, the buyer is lifting the offer from the broker in this deal.
Disclaimer
I want to be clear: This information isn't tax, investment, or financial advice. It's presented without considering your specific investment objectives, risk tolerance, or financial situation, and it might not suit everyone. Remember, investing carries risks, including the potential loss of principal.
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