The proxy bidding system is a method whereby a buyer enters in the absolute most that she is willing to pay for an item. At that moment, eBays servers take over. If I am the highest bidder, then I take the lead, but only enough to beat the former leader by one increment, or exactly the amount of the opening bid, if I am the first bidder. If not, then the current leader uses his True Max to Proxy bid enough to maintain the lead.

A key factor in proxy bidding is the amount you have bid, called your True Max Bid, keeps itself as much of a secret as it can. At any given time, it shows only enough of itself to take the lead. Only if somebody outbids you will your True Max be revealed, then the other True Max becomes a secret. If you are the current leader, you can still bid, and eBay will simply increase your Proxy, and won't alter the amount of the current bid.

The only exception is if your old Proxy Bid was greater than the second-highest bidder by less than one increment. In this case, your current bid will rise until it is greater than the second highest bidder by one increment. In the case of tied proxy bids, the same thing happens, since eBay will recognize the early bid as the highest.

Once the auction is over, the highest bidder wins, and owes an amount equal to the second highest bidder plus one increment. The amount of the increment is defined by eBay and depends on the value of the second-highest bid. Any amount of the bid above and beyond the winning total is kept hidden. Nobody will ever know the amount of your True Max, even the seller. The only exception to this is if the difference between the highest and second highest bid is less than one increment.

Technically, any bid is a proxy bid, but the general convention is to call a bid a proxy only if it's the absolute most you are willing to pay for an item. Otherwise, we call it a lowball bid.

Note that if you are the only bidder, you will win and owe the amount of the opening bid. Even if you have bid multiple times, you still count as the only bidder. If the item opened for $1.00 and you bid $1000.00, and nobody else bid, you will win for $1.00

There's an Acme Widget up for auction. The opening bid is $1.00. You see it, and you're not sure that you really want it, so you bid $2.00. You take the lead with $1.00. Since you took the lead away from nobody, the current amount is the same as the opening bid, since the first bidder does not bid against the opening bid.

A little while later I see the item, and decide that I want it. I enter a Proxy Bid of $20.00. At that moment, because I am the new high bidder and because I took the lead from someone, I need to beat your max bid. I take the lead for $2.50. That's $2.00 to match you plus $0.50 for the minimum increment to pass you. The $17.50 difference between my current bid and my True Max is my remaning proxy, or my safety margin. eBay won't reveal that or use it until it becomes necessary.

A little later, I decide that $20.00 may not be enough to hold the item, so I bid again for $30.00. I am basically bidding against myself. eBay is smart enough to recognize this, so I remaing the high bidder and the current bid is still $2.50. I don't have to spend any of my proxy to take the lead. I now have a $27.50 safety margin.

You see this, and decide that you really do want the item, and you're willing to bid more. You bid $5.00. That's not enough to overtake me, so I remain the high bidder, but I need to spend some of my Proxy to stay there. eBay moves my bid current bid up to $5.50. $5.00 to match you, the second-highest bidder, plus the increment of $0.50.

Still determined, you bid $10.00. I remain the leader at $10.50. You then bid $25.00, and I remain the leader at $26.00, since the increment is now $1.00 instead of the former $0.50. In a fit of rage, you bid $50.00. You now take the lead at $31.00. $30.00 to match me plus the $1.00 increment to pass me.

Still later, a world-famous widget collector comes along, and recognizes this is a very rare model. She bids a whopping $500.00 for it (WOW). She takes the lead at $51.00, which is equal to my max of $50.00 plus the $1.00 increment. There are no other bids, and the collector ultimately wins for $51.00. Her $449.00 safety margin vanishes into the Great Void, never to be seen by anybody.

One side effect of the proxy bidding system is that it may often appear that you were outbid by exactly one increment, when in fact you may not have been. Even when the auction ends, the auction page and bid history only show the winning amount. The original True Max Bid is never known by anybody except you, unless you win by less than one increment. In our example, the winner would be shown to have bid $51.00, even though she bid much more. The hidden proxy remains hidden even after the auction ends.

The exceptions to that rule are when the winner wins by less than an increment or ties with a later bidder. In that case, the entire proxy is revealed and you can see the winners full bid. Interestingly, if the winner does win by exactly one increment, you will see the entire proxy bid, although you won't know it, since it looks exactly like any other bid where the winner wins by more. Another exception is Dutch Auctions, since they don't use the proxy bidding system in exactly the same way as other auctions.

If the auction does not have any bidders, then the current bid is the minimum bid. In this case, you only need to bid the minimum, and you will be the leader. Once there is at least one bid, then you must bid an amount equal to at least the minimum bid plus one increment. You will see this amount on the auction page. You may never bid under the listed amount. You may bid more, of course, and I recommend that you do, as long as you are willing and able to pay any amount that you bid.

If you are the current leader, you can continue bidding to raise your proxy. When this happens, eBay is smart enough to recognize that you are not bidding against yourself. When you bid as the high bidder, the current bid will not change, barring the exception mentioned above. Only your Max Bid will raise. For most intents and purposes, eBay treats these as just one bid, although the total amount of bids will record that you are raising your Proxy Bid.

If you proxy is significantly over the minimum, and another user bids very high, eBay will automatically bid for you, either to retain the lead or to bid up the new leader as high as she can go. The auto-bids by eBay are not recorded in the bid history. Only bids that you or a bidding service make are recorded. In the bid history, they are sorted in descending order of amount.