Iceberg orders are large single orders that have been divided into smaller limit orders, usually through the use of an automated program, for the purpose of hiding the actual order quantity.

Iceberg orders consist of two main components:

1. The visible "peak" quantity shown to the market

2. The hidden "reserve" quantity that replenishes the visible portion

When the visible portion is fully executed, it automatically replenishes from the reserve, maintaining continuous market presence without revealing the total size.

1. Minimized Market Impact

By concealing the full order size, iceberg orders prevent large trades from significantly affecting the security's price.

2. Enhanced Price Execution

Traders can achieve better average prices by avoiding drastic price movements.

3. Discretion

Large institutional traders can execute substantial trades without signaling their intentions to the market.

Since iceberg orders are designed to be hidden, they can be challenging to detect, but there are some  signs:

1. Unusual Replenishing of Orders at a Specific Price Level

If a specific bid or ask level seems to refill after execution, it may indicate an iceberg order e.g. You execute a trade against a bid size of 500, but the bid remains at 500 or reappears repeatedly.

2. Time & Sales Analysis

If a large number of small trades occur at the same price level, it may be a sign that a hidden order is being executed in portions.

3. Level 2 Order Book Depth Analysis

Watching the order book for abnormal behavior (e.g., constant replenishment at a price level) can indicate iceberg activity.

4. Unusual Market Reaction to a Seemingly Small Order

If small orders cause price resistance or sudden reversals, it may indicate a hidden larger order.

5. Volume Clusters at Specific Price Levels

Large executed volumes without significant changes in the order book suggest the presence of iceberg orders.