Next video:
Loading the player...

A Dutch auction is a public offering auction in which bids for a stock offering begin at high prices and decrease until the price at which the total offering can be sold is determined.

The U.S. Treasury uses Dutch auctions to sell securities. Dutch auctions can help companies optimally price their IPOs​, as well.

Suppose ABC Corporation is issuing an IPO with the plan to sell 1,000 shares. The company uses a Dutch auction in which investors enter bids for the number of shares they want and the price they’re willing to pay. One investor may bid $100 for 100 shares; another might offer $95 for 500 shares; another offers $90 for 400 shares.

Once all bids are submitted, the price each bidder pays is based on the lowest bid that will sell the entire allotment. If the final successful bid is $90 for 400 shares, the other bidders will only have to pay that amount for their shares even if they bid higher prices.

A Dutch auction also refers to an auction in which an item’s price is lowered until the item is bid upon. In this case, the first bid usually wins.

 

Related Articles
  1. Investing

    Should You Buy a House At Auction?

    The traditional real estate market isn't the only place to conduct your home search. Auctions also bring many buying opportunities.
  2. Personal Finance

    How The Auction Market Works

    Here's a look into the online auction market and how to get yourself the best value possible on sites like eBay and Quibids.
  3. Investing

    eBay vs. DealDash: Comparing Auction Sites (EBAY, PYPL)

    Learn how the bidding process works at DealDash and eBay, and discover the potential pitfalls when making bids at these auction sites.
  4. Managing Wealth

    3 Reasons To Buy Government Surplus for Your Small Business

    Learn why it's wise to access government surplus auctions to buy furnishings, equipment and other items to start a new business or expand an existing business.
  5. Investing

    Should You Buy A House At Auction?

    In theory, many of the best properties are auctioned. But auctioned properties aren’t always hidden gems.
  6. Managing Wealth

    Top Ways To Profit From Storage Auctions

    Here are some extremely valuable tips to help you become an expert at finding deals at storage auctions.
  7. Investing

    Negotiating the Bid

    A bid is an offer investors make to buy a security.
  8. Investing

    The History Of The T-Bill Auction

    Learn how the U.S. found the perfect solution to its debt problems and ended up creating one of the largest markets in the world.
  9. Managing Wealth

    How To Master Online Auctions For Fast Cash

    Online selling is just as easy as in-person selling and can yield five to 10 times the profit.
  10. Insights

    President Trump’s Old Ferrari Auctioned After Speed Bump

    A Ferrari formerly owned by Donald Trump—the only president to have owned a supercar—was auctioned for $270,000.
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  3. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  4. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  5. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  6. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
Trading Center