DEFINITION of 'Bid Support'
1. A manipulative practice employed to prop up a company’s stock price on the open market.
2. Bid support may also refer to a substantial number of orders from different market makers on the bid side of a stock, which can signal a trader to buy the stock on the expectation that it will advance.
3. A third meaning of bid support refers to the services provided by accounting and consulting firms to companies making takeover bids for other firms.
Bid support, as a form of market manipulation, involves multiple bids for small amounts of a particular stock being placed just below the highest bid price posted by market makers. This has the effect of absorbing sell orders and creating an artificial floor for the stock, while giving the impression that plenty of buyers are waiting in the wings.
BREAKING DOWN 'Bid Support'
As an example of a bid support operation, assume the highest bid price posted by a market maker for a stock that has been heavily promoted is $1.75. The stock promoter then gets his cronies to place bids through different brokerage firms for a few hundred shares at $1.70, $1.65 and so on. This layering absorbs some of the selling pressure and prevents the stock from falling sharply, while the appearance of a number of bids placed through different firms gives sellers the impression that demand for the stock is much greater than it is. This may cause sellers and short-sellers of the stock to rethink their strategy and back away from attempts to drive down the stock.