What is an iceberg order?
An iceberg order is a big trading order chopped into different smaller pieces. It is a way to trade large amounts of coins if there are large shifts in the market. For example, buying or selling 50,000 Bitcoin tends to lead to a gigantic drop in the value of cryptocurrencies, disrupting the market, not only for the trader placing the order but also for all other market participants. When investors want to execute big transactions, iceberg orders divide them into different smaller orders. So when should you place iceberg orders?
Iceberg trading avoids major changes in the crypto market, like price disruptions. Based on a systematic plan, transactions are executed in a structured manner. This prevents huge changes in cryptocurrencies and demand. The trades are usually executed by an exchange until the schedule is completed and the total order is settled.
Here is an example of an iceberg order: if you want to sell 100 BTC, you divide a big order like this into smaller pieces. You start with an order to sell 30 BTC. Then, you sell 20 BTC, another 25 BTC and finally the last 25 BTC.
What kind of traders use iceberg orders?
An iceberg trade is most often executed by large institutional investors. They are mostly used by market makers, which is another word for an individual or firm that is providing offers and bids. When it comes to such big crypto transactions, we mostly talk about institutional crypto investors. They often trade in large amounts of cryptocurrencies, which may greatly impact the market.
As an investor, it’s possible to look up the order in the order books, but only a small part of the market maker iceberg orders is visible on order books. Order books, in the crypto world, contain all bids and asks on an exchange including price, volume and timestamp — real-time data collection. People call it the tip of the iceberg for a reason: The rest of the order is “under the surface.” For smaller investors like retail traders, placing an iceberg order is not common.
How do iceberg orders work?
Investors divide a large order into several small pieces and place them on the market.
When investors want to buy or sell large quantities of crypto, they use iceberg orders. They want to trade but don’t want to upset the market. By dividing their order into smaller parts, they do not influence the demand or supply on the market because they stay off the radar. The purpose of those investors is to execute all of their orders at the preferred price. For example, when you’re selling or buying large amounts of BTC, the last thing you want as a trader is to inflate the price of a currency because of buying pressure from other investors. But, how do you identify an iceberg order? To begin with, you need to start digging in order books, where you can find a lot more information and show market depth.
Final words
An iceberg order is a simple way to avoid panic in the crypto market. In essence, iceberg orders – these covert and efficient mechanisms of managing large positions in trading – offer a sophisticated solution: they ensure minimal disruption to the market and curtail the risk of price slippage.
