DEFINITION of 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.
BREAKING DOWN Hit The Bid
To "hit the bid" is to sell a security to another party at its bid price, which represents what the seller believes is the highest price among competing bidders for the security at the moment.
Example of To Hit the Bid
For example, a portfolio manager has a junk bond that it wants 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 at that price. The other side of "hit the bid" is "lift the offer." In this scenario, the trader buying the junk bond from the portfolio manager is "lifting the offer" from the broker.