In recent years, electronic trading platforms have added the capability to place iceberg orders. What are they, and are they helpful to the average retail trader?

The reference to iceberg stems from the idea that the tip of the iceberg is the only visible part of a large mass of ice emerging from a body of water. Accordingly, the term iceberg order is defined as the practice of breaking up an order to buy or sell a large quantity of contracts into multiple smaller orders through the use of automated software.

 As the futures markets moved from open-outcry execution to electronic, this order type has become more popular. This is because traders — retail or commercial — who trade large quantities typically prefer to mask the true volume from view of others. In other words, iceberg orders enable the public to see only a small portion of the actual order at a time.

Most futures trading platforms offer the ability to view DOM (depth of market) data in which it is possible to observe the working buy limit and sell limit orders of other traders. These working orders on display are often referred to as the “book.” Some traders monitor the trading book for large-quantity orders. In theory, large buy orders indicate the market may be inclined to move higher, or at least it suggests that large players believe it will. These inferences, whether right or wrong, can influence prices and possibly prevent the entity placing the large quantity to be filled at their desired price. As a result, funds and institutions placing sizable orders have incentive to mask the true quantity of their order. Simply put, those using iceberg orders do so under the belief that it will reduce the impact the order has on price movement as it is absorbed into the market.

Continue reading about Iceberg Orders...

Futures and Options Trading Booksby Carley Garner

What People are Saying about Our Commodity Trading Books

Choosing a Futures Broker and Brokerage Service

Full-Service or Online Trading?

The decision to trade online or through a full-service commodity broker will undoubtedly make a large impact on your bottom line.

Learn More

A Fair Commission Rate vs. Low Commission

To look at commission rates objectively, we must understand the background of the futures industry and how brokerages accept risk for fees.

Learn More

Choosing a Commodity Brokerage Firm

Deciding on a commodity brokerage firm is a significant decision and shouldn’t be taken lightly. Not all traders and brokers are compatible.

Learn More

Choosing a Futures and Options Broker

Most traders in search of a futures broker are concerned primarily with trading platforms, commission, and quality guidance.

Learn More

The Truth about Futures Commission

The goal of futures trading should be to MAKE money, not SAVE it! Discount commodity brokers cut corners that cost their clients time & money.

Learn More

Commodities via Futures or ETFs?

A key difference to trading commodity futures over ETFs is leverage, but there is more to discuss, such as taxes, market hours, and efficiency.

Learn More