What Is Hit The Bid?

‘Hit the bid’ is a buzzword used to describe an event where a trader agrees to sell at a bid price quoted by another trader. The "bid-offer" (or "bid-ask") quote is controlled by a broker, or market maker, who collects commission based on the bid-offer spread. 

Key Takeaways

  • ‘Hit the Bid’ is when a trader agrees to sell at the bid price quoted another trader.
  • The bid price is determined primarily by what the seller has decided is the highest price among a group of competitive bidders.
  • The minimum price that a seller is willing to sell a stock at is known as the ask price.
  • Lift an offer is to purchase a security and is the reverse side of hit the bid.
  • Consistently winning bids requires attention to be paid to bid-hit ratio, true job cost, personal interactions, and reliable software.

How Hit The Bid Works

To "hit the bid" is to sell a security to another party at its bid price. This price represents what the seller believes is the highest price among competing bidders for the security at the moment.

When making a bid offer, take into consideration what you want the turn-around profit to be when you decide to sell. 

Special Considerations

To establish a winning bid strategy, you must keep an eye on your bid-hit ratio. This ratio measures how successful your bidding process is. When you track your bid-hit ratio, you are better able to predict and improve your odds of winning future bids, by recognizing what strategies you should focus on and which you should avoid. Secondly, you must be aware of your true job cost; this will help you maintain a profit margin while winning bids. 

By utilizing job cost accounting software, you are able to gather the necessary information about job costs, including materials and labor. Whenever possible, include face-to-face interaction with the person on the other end. Holding a meeting with the person deciding whether or not to accept a bid puts a face to your name, and can increase your chance of winning the bid.   Lastly, investing in high performing estimating software can allow you to make bids swiftly and with confidence. 

Types of Hit the Bid 

The maximum price the trader is prepared to pay in order to wait for a higher price is known as the bid price. On the other hand, the minimum price a person is prepared to sell a stock is known as the ask price. Bids and asks both occur due to the fact that the market requires a seller and a buyer with every transaction. The ask price of a security is generally lower than what the bid price will be. This price difference occurs because a buyer will not invest in a security for higher than the price they are willing to eventually sell it for.

Example of Hitting the Bid

For example, a portfolio manager has a junk bond that they want to sell. The portfolio manager calls a junk bond broker to solicit bids for the junk bond. The broker calls prospective buyers and immediately works up a bid of $75 for the bond. The broker communicates this bid to the seller. The seller declines. 

Another bid comes in from the market maker for $74, and the seller again declines. Later, the broker goes back to the seller with a $74.50 bid. The seller hits the bid and sells it at the requested price. The other side of "hit the bid" is "lift the offer. To lift an offer is to purchase a security. In this scenario, the trader buying the junk bond from the portfolio manager is "lifting the offer" from the broker.