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What Does "Hit the Bid" Mean?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 August 2014
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    Conjecture Corporation
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"Hit the bid" is a slang term that is used in investment circles to describe a situation in which one broker is willing to sell an asset at a price that is extended by a different broker. Usually, this means taking up an offer from another broker that is currently the best possible bid considering the current condition of the marketplace. In effect, the bidder who is trying to sell the asset decides to commit to or hit the bid of the other broker as the means of effecting a transaction between the two parties.

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The general idea behind a hit the bid strategy is to lock in the best possible price for an asset that an investor wishes to sell. To that end, the broker who is managing the sale on behalf of that investor will often set an ask price that is based on factors such as the current market price and the future potential of the asset to gradually increase in value. With that ask price in mind, the broker will make the rounds to see what type of price the market will bear. Often, the best possible price will equal the current market price associated with the security. At other times, the best price may be more or less than that market price. The broker will sort through all possible bid prices for the security, then focus on the highest bids that other brokers are willing to pay for the security. In this manner, the broker is able to obtain the best possible price for his or her client.

One way to understand what happens in a hit the bid scenario is to consider an asset that the investor is willing to sell at a price of $100 US dollars (USD) per share. The broker will let the price be known and identify offers from other brokers who are acting on behalf of their clients. If no one is willing to pay the $100 USD per share, but there is one who is willing to pay $99 USD per share, the selling broker will consult with the investor and, if the offer is acceptable, proceed to hit the bid and arrange the deal with the buying broker.

Many brokers hit the bid every trading day. Depending on the type of investment involved and how much in demand that security happens to be, sorting through possible bids may take some time. This is particularly true if the asset in question is perceived by investors as having a significant amount of potential for growth, either in the short-term or the long-term. If there is relatively little interest in the asset that the investor wishes to sell, the broker may find that identifying the right bid to hit can be managed quickly.

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