Iceberg Order
Iceberg Order Key Points
- Iceberg Order is a trading strategy implemented in the cryptocurrency and traditional financial markets.
- It involves the placement of large orders in smaller, publicly visible ‘chunks’, while the majority of the order remains hidden.
- This strategy is used to avoid price slippage and market manipulation.
- Iceberg Orders are commonly used by large institutional investors and high-frequency traders.
Iceberg Order Definition
An Iceberg Order, also known as a reserve order, is a large single order that has been divided into smaller lots, typically through the use of an automated program, for the purpose of hiding the actual order quantity.
What is an Iceberg Order?
An Iceberg Order is a complex trading order which splits a large quantity of stocks or cryptocurrencies into smaller parts.
The name ‘Iceberg’ comes from the fact that only a small portion of the order is visible to the market, while the majority remains hidden, similar to the structure of an iceberg.
The publicly visible portion is called the ‘peak’ while the hidden portion is referred to as the ‘base’.
Who Uses Iceberg Orders?
Iceberg Orders are typically used by institutional investors, market makers, and high-frequency traders who deal with large quantities of stocks or cryptocurrencies.
Their orders are so large that if placed all at once, they could significantly impact the market price.
Therefore, to prevent price slippage and minimize market impact, they use Iceberg Orders to break their large orders into smaller, manageable pieces.
When are Iceberg Orders Used?
Iceberg Orders are used when a trader wants to buy or sell a large quantity of a particular asset without revealing their full order size to the market.
This is often done to avoid price manipulation by other market participants who might take advantage of the knowledge of a large pending order.
Where are Iceberg Orders Used?
Iceberg Orders are used in both traditional financial markets and in cryptocurrencies exchanges.
They are often used in electronic trading platforms that support algorithmic trading.
Why are Iceberg Orders Used?
Iceberg Orders are used to prevent significant price movements that can occur due to large orders.
They help to maintain market stability and to prevent other traders from manipulating the price in their favor.
By using an Iceberg Order, a trader can execute a large order without revealing their full trading intentions to the market.
How are Iceberg Orders Executed?
Iceberg Orders are executed using automated trading systems.
These systems divide the large order into smaller ones and execute them one by one.
Once a part of the order is executed, another part of the hidden order is revealed and executed, and this process continues until the entire order is completed.