Institutional investors use iceberg orders to avoid large price movements. This article dives deep into iceberg orders, how they work, and how to spot them.

An iceberg order is a type of execution strategy that hides the full size of a trade by revealing only small portions at a time. Used by institutions and large traders, it helps reduce market impact. Understanding how iceberg orders work, where they’re used, and their risks can help traders more accurately analyse market activity. This article breaks down everything you need to know about iceberg orders and their role in trading.

What Is an Iceberg Order?

An iceberg order is a type of order designed to execute large trades without revealing the full size to the market. Instead of placing one massive position that could disrupt prices, traders split it into smaller portions, with the rest hidden. As each portion gets filled, the next one is placed automatically until the full order is executed.

The key feature of this type of entry is that only a fraction—known as the display quantity—is visible in the order book at any given time. The rest remains hidden until it’s gradually revealed. This prevents other traders from immediately recognising the true size of the position, which helps avoid unnecessary market movements.

For example, if a trader wants to buy 50,000 shares of a stock, placing the full position in the market at once could cause prices to rise before execution is complete. Instead, they might set an iceberg order with a display size of 5,000 shares. Once the first 5,000 are bought, another 5,000 are automatically placed, repeating until the full 50,000 are executed.

They’re particularly useful for institutional traders, hedge funds, and high-net-worth individuals who want to build or reduce positions without attracting attention. However, some retail traders also use them when executing relatively large trades in markets that support this execution type. Many major exchanges, including those for equities, forex, and futures, allow icebergs, but their availability depends on the broker and trading platform being used.

How Iceberg Orders Work

The main idea of iceberg orders is clear but let’s consider how they work in detail.

Order Execution Process

When a trader places an iceberg order, they specify two key parameters:

• Total size – The full amount they want to buy or sell.
• Display size – The portion that will be visible at any given time.

For example, if a trader wants to buy 20,000 shares but only wants 500 to be visible at a time, the order book will show just 500 shares. Once those are bought, another 500 will appear at the same price (if still available), and the cycle continues until the entire 20,000 shares are filled.

Dynamic Execution

Some trading platforms and institutional brokers use smart order execution algorithms to optimise how these orders are placed. These algorithms might adjust the display size dynamically based on market conditions, ensuring the order gets executed efficiently without drawing too much attention.

Hidden Portions and Order Book Activity

Although most of the order remains hidden, experienced traders and high-frequency algorithms can sometimes detect iceberg levels. If they notice an order constantly refreshing at the same price level without an obvious large sell or buy position, they may infer that an iceberg is in play.

Where Iceberg Orders Are Most Popular

They are most popular in liquid markets where frequent trading activity allows the hidden portions to be executed smoothly. In less liquid markets, there’s a higher risk that the order will be only partially filled or take longer to execute, making alternative execution strategies more practical.

Why Traders Use Iceberg Orders

Iceberg orders help traders hide their full intentions from the market. Here’s why they’re commonly used:

Reducing Market Impact

When a large position enters the market, it can shift prices before the full trade is completed. This is particularly an issue in less liquid markets, where even moderate positions can cause price swings. By splitting a large trade into smaller, hidden chunks, iceberg orders prevent sudden moves that could work against the trader.

Avoiding Slippage

Slippage occurs when an order is executed at a worse price than expected due to market movement. Large trades placed all at once can exhaust available liquidity at the best price levels, forcing later portions to be filled at less favourable prices. Iceberg orders help mitigate this by allowing the trade to be executed gradually without consuming too much liquidity at once.

Maintaining Discretion

Institutions and high-net-worth traders often prefer to keep their trading activity under the radar. If other market participants see a massive buy or sell entry, they may react by adjusting their own strategies, making it harder for the original trader to get a good price. Icebergs keep most of the position hidden, preventing this from happening.

Reducing the Risk of Front-Running

High-frequency trading firms and aggressive traders actively monitor the order book for large transactions. When they spot them, they may enter positions ahead of the large trade, pushing prices in an unfavourable direction. By keeping most of the trade hidden, iceberg entries make it harder for others to exploit this information.

Identifying Iceberg Orders in the Market

Iceberg orders are designed to be discreet, but experienced traders and algorithmic systems can sometimes detect them by analysing order book activity and price movements. Since only a small portion of the total order is visible at any given time, certain patterns can reveal the presence of an iceberg in action.

Order Book Clues

One of the most obvious signs is a persistent order at the same price level. If a bid or ask keeps refreshing with the same quantity after being partially filled, it may indicate that a much larger hidden position is sitting at an iceberg level. This is particularly noticeable in less liquid markets where large trades are more disruptive.

Another telltale sign is a large trade volume without corresponding large visible orders. If significant buying or selling occurs but the order book only displays small entries, there’s a chance that a hidden order is gradually being executed.

Time and Sales Analysis

Traders can also look at time and sales data, which records every transaction. If the same price level repeatedly absorbs multiple trades without depleting, it suggests a hidden order replenishing itself after each execution.

Analyse an order book along with time and sales data in FXOpen’s free TickTrader trading platform.

Algorithmic Detection

Some trading algorithms are specifically designed to identify icebergs. These tools scan for patterns in order execution and attempt to infer hidden liquidity. While not always accurate, they can give traders an idea of when institutional activity is taking place.

Risks and Limitations of Iceberg Orders

While iceberg orders can help traders execute large trades discreetly, they are not without drawbacks. Market conditions, execution risks, and the rise of advanced trading algorithms can all impact their effectiveness.

• Incomplete Execution: If market conditions change or liquidity dries up, part of the position may remain unfilled. This is especially problematic in volatile or low-volume markets where price movements can accelerate unexpectedly.
• Detection by Algorithms: Sophisticated trading algorithms actively scan for hidden orders. High-frequency traders (HFTs) may detect it and adjust their strategies, making it harder to execute at a favourable price.
• Increased Trading Costs: Splitting a large entry into multiple smaller ones can lead to higher transaction costs. Exchanges and brokers may charge fees per executed trade, meaning an iceberg entry could end up costing more than a single bulk position.
• Slower Execution in Fast Markets: When markets move quickly, the visible portions of an iceberg might not fill fast enough before the price changes. This can lead to slippage, where later parts of the order get executed at worse prices than intended.
• Limited Availability: Not all brokers or exchanges support icebergs, particularly in smaller or less liquid markets. Some platforms also impose minimum position size requirements, restricting their use for smaller traders.

The Bottom Line

Iceberg orders enable traders to execute large trades discreetly, minimising market impact and enhancing execution quality. While they offer advantages in managing liquidity, they also carry risks such as detection by advanced algorithms and potential slippage. Traders should exercise caution and conduct thorough market analysis.

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FAQ

What Is an Iceberg Order?

An iceberg order is a type of order that splits a large trade into smaller visible portions, with the remaining size hidden from the order book. As each visible portion is filled, the next one is automatically placed until the full order is executed. This helps traders avoid moving the market or revealing their full position size.

How Do You Identify an Iceberg Order?

Traders can spot icebergs by looking for repeated small trades at the same price level. If an order keeps refreshing after partial fills without a visible large order in the book, it may indicate hidden liquidity. Time and sales data, as well as algorithmic tools, can help detect these patterns.

What Is the Difference Between an Iceberg Order and a Basket Order?

An iceberg order breaks a single large entry into smaller, hidden parts, while a basket order consists of multiple different trades executed together, often across various assets or instruments. Basket orders are used for portfolio adjustments, whereas iceberg entries focus on reducing market impact.

What Is an Iceberg Order in Crypto*?

In crypto* markets, iceberg entries function the same way as in traditional markets—hiding large trades to prevent price fluctuations. Many exchanges offer this feature, particularly for institutional traders handling large positions.

How Do I Place an Iceberg Order?

Availability depends on the broker or exchange. Traders typically set the total position size and the visible portion, allowing the system to execute the trade in smaller segments.

What Is the Iceberg Order Strategy?

The strategy involves using iceberg orders to accumulate or distribute large positions without drawing attention. It helps reduce slippage, maintain discretion, and avoid triggering unnecessary price movement.

*Important: At FXOpen UK, Cryptocurrency trading via CFDs is only available to our Professional clients. They are not available for trading by Retail clients. To find out more information about how this may affect you, please get in touch with our team.