When trading cryptocurrencies on centralized exchanges (CEXs), you come across order books that carry order information. But it turns out that the data you own is not complete. The reason for this is iceberg applications.

What is an iceberg claim

An iceberg order (application) is a large trading order, which is divided into several smaller ones. It is used to buy or sell large amounts of cryptocurrencies. When conducting large transactions, for example, when selling 100,000 bitcoins, such an application will immediately attract attention. Most often, a strong decrease in the value of a cryptocurrency leads to market destabilization. And this will affect not only the one who placed a large order, but also all other traders.

If market players want to implement large transactions, they divide them into several smaller ones. This will allow you to remain unnoticed – often no one reacts to small orders. The fact that the application was large, traders will find out after the fact, when it has already been implemented.

Who uses iceberg claims and why

Iceberg orders allow you to avoid major changes in the crypto market, such as large price jumps. They are an easy way to avoid market panic. Based on the logistics plan, all transactions are carried out in a structured manner. This avoids big changes in cryptocurrencies and demand. The broker will execute trades according to the schedule until the order is settled.

Here is an example of a simple iceberg order. Let’s say we want to sell 2,000 bitcoins. To do this, we divide our entire volume into small orders: 200-300 BTC each.

Someone may have a question: what is the difference between hidden and iceberg orders? By and large, the former are an integral part of the latter. An iceberg order consists of two parts: a visible one, which is reflected in the order book, and an invisible one, which will become visible as the order is executed.

Retail traders tend to use conventional stop orders because they simply don’t have large amounts to panic the market. But the iceberg is used by those who have a lot of money. Naturally, they do not want to panic, but they can cause it. Usually these players are institutional investors. Also, iceberg orders are also used by market makers, who are entrusted with the function of filling orders in the order book (order book).

If you watch the market, you may find similar orders, but only a subset of them. It is often impossible to detect iceberg orders of market makers in the order book. Although the order book contains comprehensive information about all orders on the exchange: time, volume, price. This data is collected online.

Everything is quite simple. The part visible in the order book is called the tip of the iceberg, since the rest is “under water” – hidden. The use of icebergs for private traders is not typical, and often not available.

How iceberg orders work

Investors divide a large order into several small pieces and put them on the market one by one. When they need to sell a large amount of cryptocurrency, they use iceberg orders. By dividing their trading order into several small ones, they do not have such a visible and significant impact on market supply and demand, as they remain unnoticed.

The main task of such traders is to execute all their transactions at the desired price. For example, in a situation where you are selling or buying bitcoin, the very last thing you want to see is a sharp price change caused by rush buying or selling.

But how do you spot iceberg claims? To begin with, you will have to have a good understanding of the second level order books. Books of the first level contain general information about prices, without detailed details. The second level provides much more data and shows the depth of the market: the top 10 buy and sell prices.

To identify iceberg orders, it is necessary to use the order books of the second level. This is due to the fact that after the visible part of the order is executed, the next part is loaded automatically. Examine in detail the columns with prices in the trading glass. If you find orders with an identical price, then most likely this will be an iceberg. The strategy is quite formulaic.

How to place an iceberg order

Take advantage of a platform or utility that gives you direct access to the market and order book. After that, open an account and trade large amounts step by step.

Trading using iceberg orders is not available on regular trading platforms. You will be able to use such orders only where direct access to the markets is provided. As a rule, such platforms are well developed technologically. For example, order books are accessed by platforms such as BitMEX and BitFinex.

As soon as you open an account, you can immediately start trading. The principle of operation of almost all sites is identical. When you start trading, when choosing an order, you choose not a limit, market or stop order, but an iceberg.

Conclusion

Thus, iceberg orders are used by large players with large capitals. They are applied because institutional investors do not want to cause sharp jumps in the price of cryptocurrencies. The strategy is driven by the leveling of fluctuations in the market rate of the asset being sold, which could potentially arise if such orders are not applied.

This material and the information in it does not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.