An iceberg order is an order type that allows you to conceal the true size of your order. These orders are increasingly common in today’s market as almost everyone has access to them.

The idea is that instead of displaying your entire order (which might have a significant market impact), you display a comparatively small order. 

For example, perhaps you want to conceal that you’re buying 2,000 shares of a stock, so you enter an iceberg order at the limit price of $10.00, displaying 100 shares.

Once your 100-share bid is hit, another 100 shares will automatically be ‘reloaded’ until you’ve bought all 2,000 shares. 

It’s called an iceberg order because, like the peak of an actual iceberg, you can only observe a fraction of its actual size.

Imagine the “tip” of the iceberg below as displaying a 100 share bid, when in reality, there are 10,000 shares ready to reload behind that bid.

Iceberg Order Definition

In a manual for their trading platform, TWS, Interactive Brokers described an iceberg order like this: 

An Iceberg order allows you to submit an order (generally a large volume order) while publicly disclosing only a portion of the submitted order.”

Why Pay Attention to Iceberg Orders?

The well-capitalized smart money traders use this order type because they can’t just place a direct limit order showing 100,000 shares. It would drive the market price down and even cause momentum traders to hop in front of them.

They know their orders move the market, so they’ve taken steps to hide them. 

It logically follows that if you can spot potential iceberg orders, you can track the footsteps of where the smart money is going.

Knowing that there’s potentially a substantial order in the market can provide support or resistance.

If you see an iceberg order bidding 100 shares at $25.00 and continually reloading, you can treat that as a support level because as long as that iceberg order remains, you know the price can’t dip too far below its bid price.

Of course, this is an oversimplification, as the real smart money will take drastic efforts to ensure that you don’t know where their orders are or how much they wish to trade.

How To Look for Iceberg Orders

An iceberg order’s key characteristic is when the same bid or offer instantly “reloads” after it’s lifted.

For example, you’re watching the hypothetical ticker ABC, which is $9.90 bid, $9.95 offered.

You notice that there’s consistently a resting order at $9.80 for 1,000 shares coming from EDGX. You see that after traders hit that bid, it’s instantly reloaded.

In other words, as soon as someone sells to the trader on EGDX, he immediately sends the identical order out. 

There’s a strong potential that this is an iceberg order. 

Why Looking for Icebergs is Tricky

Order flow analysis in 2021 is very difficult.

Even retail traders have access to highly sophisticated tools to conceal their true trading intentions, meaning that the smartest money is probably utilizing tactics and tricks that we don’t even know exists. 

As such, the signal to noise ratio in order flow analysis has declined with advances in trading technology. If you don’t have a keen eye and trained instincts, you’ll read several false signals.

This is especially true in equity markets, which have severely fragmented order flow through dozens of exchanges and the popularity of dark pools.

In comparison, the major futures contracts trade on a consolidated exchange and have deep liquidity, restraining the need for dark pools. 

As a point of demonstration, open an order ticket on any direct market access platform.

Look at not only the number of venues to which you can route your trade but the quantity of interesting ways to design your order.

How Do They Work?

Iceberg orders work differently depending on which asset class, exchange, and broker you’re trading with.

Some exchanges, like the CME, support “native” iceberg orders, allowing traders to place direct orders with the exchange.

If the exchange you’re trading on does not support native iceberg orders, you would have to create a “synthetic” iceberg order, which typically means you send your broker the instructions, and they replace your order as it gets hit. 

Bottom Line

The iceberg order is typically only useful if the market doesn’t have the liquidity to handle your order without significant price impact.

On the other hand, identifying potential icebergs is quite valuable and is the center point of many trading strategies.

One of the more interesting trading tools to sprout up in recent years is Bookmap, a trading platform aimed at order flow traders.

They have an iceberg identification feature, which aims to spot points where retail stop orders are being run and absorbed by institutional iceberg orders.