Traders/institutions often have large orders to be executed in the market, and placing a large order all at once in the order book could be disadvantageous, as it may reveal their intentions. To assist them with this, the trader/institution can use a hidden, algorithmic type of order known as an Iceberg or as I often say Ice.
An Iceberg order works by placing a small portion of the entire order in the order book, and once this small portion is executed, quickly adding another small portion. This process is repeated and small amounts of the original order are continuously ‘fed’ out until either the entirety of the original order has been exhausted, or price moves away from the location. This technique is algorithmic and can be very fast. The process of adding more contracts to the order book is known as Reloading.
Traders can often detect an Iceberg order by observing:
- price not moving
- a higher volume of contracts being executed at a specific level than it would usually take to move the Best Bid/Offer to the next price
- contracts available at a specific price continually being ‘reloaded’ as orders are being executed
Iceberg levels can often be potential support/resistance areas due to the large volume that was traded.