What Is Hit the Bid?
Hit the bid” is a time frame used when a broker has the same opinion to advertise at the bid price, the most efficient conceivable price a buyer is ready to pay for a security or asset. The “bid-ask” spread is the variation between the most efficient conceivable price {{that a}} buyer is ready to pay and the ground price {{that a}} supplier is ready to easily settle for. An individual having a look to advertise will hit the bid within the tournament that they wish to transact instantly at that price.
Hit the bid can be contrasted with “elevate the offer.”
Key Takeaways
- “Hit the bid” implies that a broker sells at the prevailing bid price in a market.
- The bid is the most efficient conceivable price {{that a}} buyer is ready to pay for a security.
- One will hit the bid if they are ready to advertise at the most efficient bid price using a market order.
How Hit the Bid Works
To hit the bid is to advertise a security to each different party at its bid price. This price represents the most efficient conceivable price among competing offers for the protection.
A broker will hit the bid if they believe it is a extra special price, or within the tournament that they will have to advertise in short. To hit the bid, one of the most best possible means is to enter a market order to advertise, even though a advertise limit order set at the provide bid price is also possible to avoid selling not up to the prevailing bid.
Along side the cost that an investor is ready to buy, the volume or amount bid is also crucial for understanding the liquidity of a market. Bid sizes are in most cases displayed together with some extent 1 quote. If the quote indicates a bid price of $50 and a bid size of 500, you are able to advertise up to 500 shares at $50. If the most efficient bid is for 100 shares and you have got 500 to advertise, hitting the bid with a market order will fill the principle 100 shares at that price, then again the additional 400 shares will be purchased at step-by-step lower prices until the order is filled.
Price quotes will regularly show the national best possible bid and offer (NBBO) from all over all exchanges {{that a}} protection is listed. That implies that the most efficient bid price may come from a definite industry or location.
Example of Hitting the Bid
A portfolio manager has a junk bond to advertise. The portfolio manager calls a junk bond broker to solicit bids for the junk bond. The broker calls doable shoppers and instantly creates a bid of $75 for the bond. The broker communicates this bid to the seller. The seller declines.Â
Each different bid is to be had in from {the marketplace} maker for $74, and the seller yet again declines. Later, the broker goes once more to the seller with a $74.50 bid. The seller hits the bid and sells it at the requested price. The other facet of hitting the bid is lifting the offer. In this state of affairs, the broker buying the junk bond from the portfolio manager is lifting the offer from the broker.
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