What is hit the bid, and what are the reasons why a trader does it?

Hit the bid, defined.

In trading, we often encounter the term “bid-ask spread.” We often encounter it because it is a very crucial factor in a trade. It is the difference that we get between the highest price that a buyer is ready to pay (bid price) and the lowest price that a seller wants to accept (ask price). If a seller wants to sell immediately, she will “hit the bid.” Our topic for today is “hit the bid,” and it means that the seller is willing to sell at the market bid even when she did not personally name the price but another trader. The opposite of hit the bid is called lift the order.

Tell me more about “hit the bid.”

There are different reasons why a seller will want to hit the bid. Some may need the money as soon as possible, while some think that the bid price is already reasonable. The term hit the bid means that a seller agrees to sell a security to another trader at its bid price. This price is most likely the highest one among all the participating bidders that are also interested in buying the security or asset at that time.

The best way to hit the bid is to start with placing a market order to sell. You can also cast a sell limit order set at the current bid price if you do not want to hit the bid. It is another way to sell nothing lower than the prevailing bid. Why? On top of the price that buyers are willing to buy, the amount or volume bid is essential in understanding the market liquidity.

Bid prices, bid sizes, and hitting the bid

As you may have noticed, bid size displays are always with a level 1 quote. Let us assume that the quote says that the bid price is $50 and the bid size is 500, and you can sell a maximum of 500 shares at $50. You have 500 to sell, and the best bid is only for 100. Hitting the bid by placing a market order fills 100 shares at that particular price. However, the remaining 400 will have to be sold at a considerably lower level at least until the order gets fulfilled.

Did you know?

I bet anybody would be interested to know where to access information about the best bid price from every exchange or place instead of the best offer. You can check the price quotes. There, you can find the NBBO or the national best bid and offer.

Today’s highlights

Hit the bid refers to a trader that wants to sell at the most attractive bid price in the market. And when we say bid, we talk about the best price that a buyer is ready to pay for a specific security from the seller. Sellers will hit the bid with a market order only at the best bid price. Other sellers who do not want to hit the bid places a limit order at a higher price.