Holding The Market
Categories: Financial Theory, Investing
A stock's price is falling fast. News just came out that the CEO was running down 5th Avenue naked, shouting about lobster people from Mars. The CFO wants to slow down the stock's decline while the PR staff deals with the CEO's breakdown, so she calls her broker and tells them to "hold the market."
This strategy involves putting enough buy orders in place to support the price of the stock. Basically, the broker creates fake demand, purposely gaming the stock market's bid/ask system to give a false sense that people are interested in purchasing the stock.
Imagine an art auction where your brother is selling a painting. You want him to get the best price, so you sit in the crowd, bidding against anyone else who shows interest. Your goal is to drive the price higher.
Holding the market works the same way, only in the opposite direction. Your goal is to stop a stock's decline by placing buy orders. As with the auction situation, holding the market is considered shady, and is usually illegal.