What is an Iceberg order and how to use it?

What is an iceberg order?

An iceberg order is a big trading order divided into different smaller chunks.

An iceberg order is a way to buy or sell large amounts of cryptocurrencies. If there are large shifts in the market, for example, buying or selling 50,000 Bitcoin (BTC) at once, the transaction stands out in the order books. Usually, a gigantic drop in the value of cryptocurrencies leads to a disruption in the market . Not only for the person placing the order but also for all other traders.

When investors want to execute big transactions, they divide them into different smaller orders. Among all the activity on the market, no one notices a series of smaller transactions. When someone does find out, the investor executed the transactions already.

2.

Why use iceberg orders?

Iceberg trading avoids major changes in the crypto market, like price disruptions.

An iceberg order is a simple way to prevent panic in the market. Based on a logistical plan, transactions are executed in a structured manner. This prevents substantial changes in cryptocurrencies and demand. The trades are usually executed by a broker until the schedule is completed and the total order is settled. 

Here is an example of an iceberg order: if you want to sell 1000 BTC, you divide a big order like this into smaller pieces. You start with an order to sell 300 BTC. Then, you sell 200 BTC, another 250 BTC and finally the last 250 BTC. 

This automatically brings us to the next question: What are hidden orders? Are they similar to iceberg orders? Basically, iceberg orders are indeed hidden orders with one difference: The hidden part of an order is executed after it shows up in the order book, while iceberg orders get executed directly. 

Related: A beginner’s guide to take crypto profits and reinvesting

3.

Who uses iceberg orders?

An iceberg trade is most often executed by large institutional investors. 

Iceberg orders, also known as reverse orders, are mostly used by market makers, which is another word for an individual or firm who is providing offers and bids. When it comes to such big crypto transactions, we mostly talk about institutional crypto investors. They often trade in big amounts of cryptocurrencies, which may have a huge impact on the market.

As a watcher, 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 level-2 order books. Level-2 order books, in the crypto world, contain all bids and asks on an exchange including price, volume and timestamp — real-time data collection it is. 

They call it the tip of the iceberg for a reason: The rest of the order is “under the water’s surface.” For smaller investors like private traders, placing an iceberg order is unusual.

4.

How do iceberg orders work?

Investors divide a large order into several small pieces and place them on the market 1:1.

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 main goal of those investors is to execute all of their orders at the desired 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 level-2 order books. Level 1 provides the basic price data and keeps no details. Level 2 provides a lot more information and shows market depth up to 10 best bids and offer prices. 

When you’re looking for iceberg strategy orders, you need to use level-2 order books because when the first order in line is executed, the next part reloads. Take a deep dive into the trading columns and look for orders with a similar price. It’s all about the pattern.

5.

How to place an iceberg order?

Use a platform where you have direct access to the order books and the market, open an account and start trading big amounts in small steps. 

Iceberg chart trading isn’t possible on the regular trading platforms. You can only place iceberg orders on platforms that provide direct market access (DMA). DMA requires a strong technologically developed platform where you have access to the order books like BitMEX or BitFinex. 

Once you open an account, you can start trading. Almost every platform works broadly the same. You have to select the order type and instead of an instant order, limit order or stop order, you choose to perform an iceberg order. In the following example, you see that you got a few fields to fill in. In this case, the user is buying a total amount of 1,000 BTC. The platform, in this case, OKX, will automatically buy the desired quantity of BTC.