Today I am going to talk about something important to know what iceberg orders are?
Before talking about iceberg orders it is necessary to understand who are the protagonists who issue them, without making too many words I refer to institutional investors because they aim to hide the amount of real pieces on the book. By pieces I mean for example 50000 shares of Apple at an X price.
Attention, today many trading platforms give the possibility to insert iceberg orders so we retail investors can also do it but from personal experience do not think to work miracles unless you are multimillionaire.
Specifically, large institutional investors to avoid having a significant impact on a financial instrument causing a significant purchase or sale decide to divide large orders into smaller orders.
Many times iceberg orders allow institutional investors to place boundary orders by only showing a part on the book, the result is to legally “deceive” other investors because in the end it is not possible to know what the real amount hidden behind that order is.
The goal of this type of order as mentioned before is to hide the real quantity in purchase/sale so as not to give an important signal to other investors.
If you can read the book (it is not easy, it takes years of experience) you will see that when an order is completed another of the same size will appear, but this is not always the case because institutional investors are smart and continuously change the quantity.
How do I defend myself against iceberg orders?
It is very difficult to recognize these types of orders, the only ones that are able to do this systematically are high-frequency traders because they have a “particular” technology. For all normal investors it is possible to intercept these situations through specific volumetric platforms that report particular conformations, make no illusions it takes years of experience.
Something that recalls the “way of working” of iceberg orders are the dark pools, here is the link to look at this very interesting post https://www.thomastrends.com/en/what-is-a-dark-pool/ .