Iceberg orders are a way to break down one big order into multiple small orders. These orders were designed for large institutions with large order sizes who did not want the public to be aware of their bulk order placements. But why? This is because if there are significant changes in the market, such as the simultaneous purchase or sale of 50,000 Bitcoins (BTC), the transaction will stand out in their order books. A market disruption typically results from a sharp decline in the value of cryptocurrencies. It applies to all traders, not just the one placing the order.
They used to split up massive orders into several smaller ones so that no one would be aware that there was a big-time participant; as a result, their actions should not impact the price of the cryptocurrency they are trading. An iceberg order looks like this: if you wish to sell 1000 BTC, you will split such a large order into smaller ones. You begin by placing a sell order on 300 BTC. The following three Bitcoins will follow 200, 250, and 250. Nobody notices a string of modest transactions among all the activity on the market. By the time someone does learn, the investor has already completed the deal.
Why are iceberg orders used?
It enables merchants to conceal their genuine motives. If all the orders were to be placed directly into the market, they would certainly not execute. Why not? Traders would not try to enter the scene given the sheer volume of orders in the market. They do not want to purchase when there is high demand because a high price follows.
Iceberg traders desire to trade. However, they do not wish to disturb the market. They avoid influencing supply or demand on the market by breaking their order into smaller pieces because doing so keeps them under the radar. These investors’ primary objective is to complete all of their orders at the targeted price. The last thing a trader wants, for instance, is to see the price of a currency rise due to pressure from other investors when they are buying or selling immense sums of BTC. Iceberg trading prevents significant changes in the cryptocurrency market, such as price fluctuations.
It is an appropriate option to avoid market panic. Transactions get carried out in an organised manner according to a logistical strategy. As a result, demand for cryptocurrency does not alter significantly. Ordinarily, a broker will carry out the trades until the schedule gets completed and the entire order gets settled. In addition, the iceberg order mechanism is a trading robot that traders have created. Its purpose is to quickly update the bid or ask, depending on the situation.
Iceberg orders are for whom?
Large institutional investors typically carry out iceberg trades. Market makers, another term for a person or business that provides offers and bids, sometimes use iceberg orders, also referred to as reverse orders. We primarily discuss institutional crypto investors in such large cryptocurrency transactions. They frequently trade large quantities of cryptocurrencies, which could significantly affect the market.
While an observer can search for the order in the order books, level-2 order books only display a limited portion of the market maker iceberg orders. In the cryptosphere, level-2 order books include all bids and asks on the exchange, together with price, volume, and timestamp – this is real-time data collection. It is unusual for smaller investors like private traders to place an iceberg order because the remainder of the order is “beneath the surface of the water.”
But how might one recognise an iceberg order?
Start looking through level 2 order books. Level 1 only gives the prime price information. Much more information is available at Level 2, which displays market depth up to the top 10 best bids and offers. Because the following portion reloads after the first order in a line is performed, level-2 order books are required while searching for iceberg strategy orders. Examine the trade columns closely to find orders with comparable prices. Remember, it all depends on the pattern.
How to place an iceberg order?
Brokers typically carry out iceberg deals. There are various brokers out there, so make sure you are only trading with reputable and regulated ones, like the partner brokers of Bitcoin-up.io. Another thing you want to look for is a platform that gives you direct access to the order books and the market because Iceberg chart trading is not available on standard trading platforms. Open a trading account and begin trading large amounts incrementally. DMA requires a well-developed technology platform with access to the order books, such as BitMEX or BitFinex. Almost all platforms operate similarly. Choose an order type, and you decide to execute an iceberg order instead of an instant, limit, or stop order.
One should not take the statistics they see on trading charts at face value. As a trader, consider checking the underlying reasons for price movement. Furthermore, before you start using any feature in trading, always test it thoroughly to know how the system works. And only when you completely understand it and are confident that it consistently works do you start trusting it with your capital.