The strategy of bidding up is employed when an investor has placed a buy limit order on a particular security and circumstances dictate making a change in the listed price on the order. Bidding up usually becomes an attractive move when rising prices for securities threaten to cause limit orders to be ignored, and the investor still has a strong desire to acquire the securities.
In order to engage in the practice of bidding up, the investor simply contacts the broker who currently is holding the buy limit order in question. A new limit price is calculated and used to update the existing buy limit order, rather than canceling the order. Generally, the investor will take into consideration the rising price of the security in order to arrive at the new bid. By consulting with the broker, it is possible to project the activity of the security over the next several periods and come up with a revised limit price that will respond well to the anticipated trend.
Bidding in general involves a mixture of investigation, logic, and gut instinct. The idea is always to obtain the highest degree of satisfaction with the securities acquired. Before choosing to engage in bidding up, it is always a good idea for the investor to attempt to balance all three of these factors. Exercising caution before bidding up will help to ensure that the thrill of the chase does not overshadow the practical task of growing a portfolio.
At the same time, bidding up is an effective means of hanging on and riding the projected wave that will ultimately result in acquiring a valuable asset. It is not uncommon for an investor to have to revise a limit price in order to keep the buy limit order in step with trends in the market. Understanding when to increase a bid and having good reasons for bidding up often result in a transaction that add great value to the portfolio, and possibly open the door to other lucrative opportunities.