What Is Holding The Market?
Holding the market is the deliberate practice of placing active or pending orders for a security into a market where the price is dropping rapidly in an attempt to artificially "hold" the price of the security steady, or create a floor in the security. This practice is outlawed in most instances, except when a broker or other party is mandated to keep the price of a security steady; this is only done in rare cases where there isn't enough market depth to hold the price.
"Holding the market" may also refer to the practice of owning a broad market index such as the S&P 500 or Wilshire Total Market.
- Holding the market refers to an illegal trading practice that attempts to prop up the price of a security after negative news has been released that would otherwise cause a drop in its price.
- Holding the market may be allowed in certain instances where regulation calls for market makers or specialists to add liquidity to markets with little depth.
- Not every instance of a stock holding steady in the face of negative news, however, is holding the market - perhaps a pension fund is bidding for a large block - and so only an investigation can uncover unethical practice.
Understanding Holding The Market
Holding the market is hard to pull off these days because any one person would have to have very deep pockets to make a significant impact on a security's price. One of the things that keeps holding the market from occurring more frequently is that it is rarely profitable and can often lead to severe losses if prices do not rebound. However, if such an investor with very deep pockets is considering a holding the market strategy, they should definitely try to understand first why the price of the security is dropping.
Stocks that are declining in price often have recurring themes that, once identified, can help an investor decide if a holding the market strategy is the right course of action. These themes are typically related to one of three things: market movement as a whole, industry action, or firm-specific issues.
Considerations for a Holding the Market Strategy
Most stocks react to market sentiment in predictable ways. Therefore, if negative news is released and the price of a stock remains steady - or even rises - especially with above average trading volume, further investigation may be warranted. If a company's fundamentals have not dramatically changed for the better, it could be the case that a group of individuals or firms is trying to artificially keep the price up using a series of bid orders, many of which may be spoofed (fake) orders that do not intend to trade.
Of course, not every anomalous or unexpected price movement is nefarious. There may be legitimate buy orders of large blocks placed by institutional investors for several reasonable and allowable purposes - such as rebalancing, hedging, or addition to a large portfolio.