Bid Whacker

DEFINITION of 'Bid Whacker'

A slang term for an investor who sells shares at or below the bid price. This is abnormal behavior since sellers normally settle for a price between the bid and ask quotes. In general, bid whacking is seen as a negative by other sellers since it drives the price lower.

BREAKING DOWN 'Bid Whacker'

A bid whacker “whacks down the bid” by selling shares at or below the bid price, which usually lowers future bid prices. Bid whacking tends to upset other sellers since it may temporarily drive down the market price of a security.

Bid whacking often occurs when a market is rapidly falling. In these cases, traders may want to make sure that the shares are sold by the time the order is placed without taking the risk of placing a market order.

It’s important to remember, however, that not all bid and ask prices are publicly available in Level II quotes or order books. For example, dark pools may contain bids that may not appear on public order books, which could make it more difficult to whack the bid.

Example of a Bid Whacker

Suppose that a stock opens sharply lower due to a bearish earnings announcement and continues to fall sharply. The current bid is $10.00 and the ask is $10.05. A trader or investor who wishes to exit the position at all costs may enter a limit sell order below $10.00 to avoid the risk of the bid falling below $10.00 before their order goes through. This is known as bid whacking since the move encourages shares to fall lower.

It’s important to note that the actual transaction may not occur below $10.00 since the actual shares will be filled at the best possible prices – or the bid at any given time. However, the fact that the investor is openly willing to sell below $10.00 could encourage shares to fall faster than they would otherwise. This is especially true if larger traders are bid whacking in illiquid securities since they may be prone to falling more quickly.

The Bottom Line

A bid whacker is a slang term for an investor who sells shares at or below the bid price. Often times, this occurs when a market is rapidly moving lower since traders may want to ensure that they get out of a trade even if they take a loss. Many sellers view bid whacking in a negative elight since it diminishes the price at which they can sell their shares.