DEFINITION of 'Bid Support'

Bid support has many meanings within the financial industry. Uses range from stock price manipulation to supporting a takeover bid during an acquisition. Three common definitions are as follows:

  1. A manipulative practice employed to prop up a company’s stock price on the open market.
  2. 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. Services provided by accounting and consulting firms to companies making takeover bids for other firms.

BREAKING DOWN 'Bid Support'

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.

Example of 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.

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