Iceberg Order

What is Iceberg Order?

Iceberg order meaning is used in the stock Market to avoid unnecessary fluctuations in the prices of the securities. They are specifically used to stabilize the performance of the stock market. The concept can be defined as one large order that is divided into various smaller and manageable orders. You might be wondering why companies and shareholders would split the orders into small-sized orders. Well, it is done to hide the exact size and value of the large order.

In other words, iceberg orders refer to the large orders that the shareholder divides into several smaller lots to conceal the actual size and value of the order. This can be done with the help of an automated program. The concept gets the name from the fact that what the investors get to see is just the tip of the iceberg, while in reality, there is quite a good number of hidden orders.

How does the Iceberg Order Work?

The company divides the orders into two groups, i.e. the visible and concealed ones. As soon as the visible orders are executed, the shareholders are releasing the hidden order to the investors. The main purpose of using the iceberg order is to avoid chaos in the stock market by displaying a large order.

It is specifically used by the larger companies that have large-sized orders. Often known as reserve orders, this concept is mainly embraced by the large institutions that plan on selling a large volume of securities to the investors for enhancing the company’s Portfolio. However, they don’t inform the investors about the hidden and visible orders in advance. They rather wait for the visible set of orders to be executed so that they can reveal the hidden stocks.

Why Companies Split the Large Order?

It is important to note that these companies make only a small number of stocks visible at a time. As mentioned before, this strategy is mainly used to avoid fluctuations in stock prices due to market conditions. In order to stabilize the stock market, large organizations divide large orders into smaller lots of visible and hidden orders.

Think about it – even the professional or experienced investor will not want to buy a large order and risk their investment portfolio. When the same order is split into smaller batches, they will purchase the securities without hesitation. These small orders are considered the most sought-after option for all types of investors. According to the research, investors are highly like to buy orders in the “iceberg order” pattern. The main reason for buying the small orders is to stabilize their investment and manage risk.

It is quite challenging to identify the iceberg order pattern. You need to pay special attention to the sequence of the limit orders that are released by the same company to identify the iceberg order pattern. If you manage to recognize the iceberg order, you will make the best and sound investment strategies. It can be used to identify the best time for short-selling securities.