What Is a Bid Whacker?
A bid whacker (or someone who “whacks the bid”) is slang for a broker or investor who sells securities at or below the prevailing bid price. This can also be spotted as abnormal habits, as sellers normally goal for a price somewhere in the middle of the bid-ask spread of a price quote.
Key Takeaways
- When a broker is ready to take a sale price not up to the consumer’s bid for a security, they are “whacking” the bid for all other consumers—essentially, making the business is additional essential than getting the most productive price.
- Bid whacking is most likely to occur when worry motivates sellers.
- The concern of a few consumers may also be infectious and lead to a vicious cycle of selling to be had out there.
Mainly, bid whacking is spotted as a dangerous by the use of other sellers as it drives prices lower. However, sellers who urgently need to cross out a spot will ceaselessly hit the bid—and may also keep selling subsequent bids so that you can fill their complete order.
Bid whacking is against this to an “offer lifter” who is ready to pay {the marketplace} offer or higher so that you can fill an order to buy a security.
How a Bid Whacker Works
A bid whacker “whacks down the bid” by the use of selling securities at or below the prevailing market bid. Depending available on the market depth, this may end up in because of this reality lower and reduce bid prices. Bid whacking tends to dissatisfied other sellers, on account of it’ll temporarily power down {the marketplace} price of a security.
Bid whacking ceaselessly occurs when a market is abruptly falling and sellers truly really feel some way of urgency to advertise their own positions. In the ones cases, consumers may need to be sure that the shares are presented by the time the order is located without taking the chance of placing a prohibit order.
It is very important take into accout, however, that now not all bid and ask prices are publicly available in Stage II quotes or order books. For example, dark swimming swimming pools may include bids that may not appear on public order books, which may make it more difficult to whack the bid.
Exact Life Examples of a Bid Whacker
Think a stock opens sharply lower on account of a bearish source of revenue announcement and continues to fall sharply. The prevailing bid is $10 and the ask is $10.05. A broker or investor who wishes to move out the location the least bit costs may enter a prohibit advertise order below $9.95 to avoid the chance of the bid falling below $10 forward in their order goes via. This is known as bid whacking, for the reason that switch encourages shares to fall lower. Alternatively, the broker would possibly simply start a market order to advertise, ensuring the order is completed by the use of getting rid of the liquidity in because of this reality lower and reduce bids.
You should follow that the real transaction may not occur below $10 since the real shares will be stuffed at the most productive conceivable prices—or the bid at any given time. Alternatively, the truth the investor is openly ready to advertise below $10 would possibly simply encourage shares to fall faster than they could in a different way. This is especially true if higher consumers are bid whacking in illiquid securities since they may be liable to falling additional in short.
