Table of Contents

Bidding Up Securities: What It Means, How It Works, and Examples

By

澳洲幸运5官方开奖结果体彩网:James Chen

Updated November 18, 2022

Reviewed by

Samantha Silberstein

Fact checked by

Michael Logan

Business man trader investor analyst using mobile phone app and laptop — Yaroslav Olieinikov / Getty Images

What Does Bidding Up Securities Mean?

Bidding up is the act of increasing the price an investor is willing to pay for a security. Bidding up is most commonly associated with investors who use 澳洲幸运5官方开奖结果体彩网:limit orders and is likely to be used when the price of a security in the ma🌠rket is increasing.

Key Takeaways

Bidding up is the act of increasing the price an investor is willing to pay for a security.
The phenomenon of bidding up securities often happens when investors use limit orders in a rising market.
Because sellers are unwilling to accept limit price and hold out for a better price, buyers who use limit orders inadvertently put upward pressure on the price.

Understanding Bidding Up Securities

Bidding up keeps investors from being 澳洲幸运5官方开奖结果体彩网:priced out of trades. When an investor places a buy limit order at a specified price, that investor is saying they are👍 not willing to p🌱ay any more than the price limit for a share.

This strategy works in relatively calm markets. If the price of a stock is rapidly increasing, sellers are less likely to be willing to sell shares at the limit price if they can fetch more from other buyers. By increasing the 澳洲幸运5官方开奖结果体彩网:bid price, a buyer decreases th🌠e odds that the order will go unexecuted.🐷

While the buyer may use a bidding-up strategy to improve order execution, they may inadvertently be 🔯contributing to increasing the share price. While it is unlikely tha𓃲t a single investor increasing limit order prices will put significant upward pressure on price, if enough investors follow a similar strategy, they may have an effect.

Example of Bidding Up Securities

Investors bid up when they are confident and expect a stock to continue to rise. Prior to the inauguration of President Donald Trump in January 2017, investors bid up the stock market in the expectation of favorable economic, tax and trade policies.

Bidding up can have a negative effect, for example with the 澳洲幸运5官方开奖结果体彩网:dotcom bubble in early 2000 and the 澳洲幸运5官方开奖结果体彩网:housing bubble in the mid-2000s. Fueled by emotion and market momentum, buyers overinvested and bid up prices of technology and real estate stocks. Once prices were too high to be sustainable, investors inevitably panicked and rushed to se✨ll, causing a market crash🐬.

What Are Bid and Ask Prices in a Stock Quote?

In a 澳洲幸运5官方开奖结果体彩网:stock quote, The bid price represents the highest amount a buyer is willing to pay for a stock, while the "ask" price represents the lowest amount a seller is willing to receive for selling their shares.

What Factors Influence the Price of Securities?

The price of securities rises as their demand increase. In turn, investor demand for securities increases when these factors are positive: the company earnings, the economy, the price expectation, and investor emotion.

What Is a Limit Order?

A limit ord﷽er refers to a direction to purchase or sell a stock or other security at a specified price or better.

The Bottom Line

When the price of a security i𓆏n the market is increasing, investors bid up, thus rising the price they are willing to pay. In other words, bidding up means moving the bid price higher so the buyer decreases 🐎the odds that the order will go unexecuted.

Article Sources

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