Bid Whacker

What Is a Bid Whacker?

A bid whacker (or somebody who "whacks the bid") is shoptalk for a trader or investor who sells securities at or below the current bid price. This might be viewed as abnormal behavior, as sellers normally aim at a cost some place in the bid-ask spread of a price quote.

As a rule, bid whacking is viewed as a negative by different sellers since it drives prices lower. In any case, sellers who desperately need to exit a position will frequently hit the bid — and may even keep selling subsequent bids to take care of their whole request.

Bid whacking is as opposed to an "offer lifter" who will pay the market offer or higher to take care of a request to buy a security.

How a Bid Whacker Works

A bid whacker "whacks down the bid" by selling securities at or below the current market bid. Contingent upon the market depth, this can lead to endlessly bring down bid prices subsequently. Bid whacking will in general surprise different sellers, since it might briefly drive down the market price of a security.

Bid whacking frequently happens when a market is quickly falling and sellers feel compelled to sell their own positions. In these cases, traders might need to ensure the shares are sold when the order is put without facing the challenge of setting a limit order.

It's memorable's important, in any case, that not all bid and ask prices are publicly accessible in Level II quotes or order books. For instance, dark pools may contain bids that may not show up on public order books, which could make it more challenging to whack the bid.

Real Life Examples of a Bid Whacker

Assume a stock opens pointedly lower due to a bearish earnings announcement and keeps on falling strongly. The current bid is $10 and the ask is $10.05. A trader or investor who wishes to exit the position no matter what might enter a limit sell order below $9.95 to keep away from the risk of the bid falling below $10 before their order goes through. This is known as bid whacking, as the move urges shares to fall lower. On the other hand, the trader could start a market order to sell, guaranteeing the order is completed by taking out the liquidity in subsequently endlessly lower bids.

It's important to note that the real transaction may not happen below $10 since the genuine shares will be filled at the best potential prices — or the bid at some random time. Notwithstanding, the reality the investor is transparently able to sell below $10 could urge shares to fall quicker than they would some way or another. This is particularly true on the off chance that bigger traders are bid whacking in illiquid securities since they might inclined to fall all the more rapidly.

Features

• At the point when a trader will take a sale price lower than the buyer's bid for a security, they are "whacking" the bid for any remaining traders — basically, making the trade is a higher priority than getting the best price.
• Bid whacking is probably going to happen when fear propels sellers.
• The fear of a couple of traders can be irresistible and lead to an endless loop of selling in the market.