Iceberg order

An iceberg order is a large order that is broken up into small orders to disguise the interest of a single large buyer or seller. This is done because the market is likely to react to the existence of a single large buyer or seller (which may be significant) than it is not a burst of orders from small buyers (which is likely happen by chance occasionally).

Some markets directly support iceberg orders. It is entered as a single order, but only a portion of it is publicly displayed at any time. The hidden part of the order is not usually available to match other orders until the portion that is publicly available has executed. The effect is the same as if it was a series of small orders, each of which is entered as soon as the previous one executes. If the exchange does not support iceberg orders, the order can be entered as a series of small orders.

Iceberg orders are usually both more automated and more complex. Automated systems will slice an order up into smaller orders of varying size, decide on the timing of orders, and may send orders to different markets and trading venues: for example choosing whether to send the order to a stock exchange or a dark pool. This is called algorithmic trading.

Traders, especially high frequency traders, will look for indications that a series of orders is in fact a single order that has been divided in an attempt to conceal the fact that it is a single order. If they are successful this can partially undo the benefits of the iceberg order, as they are then able to trade ahead of it.