Iceberg orders allow traders to buy or sell a large quantity of cryptocurrency without tipping off the market. By splitting their orders into smaller chunks, traders can execute their trades without causing undue price movement. This guide will explain what is iceberg order in crypto and how does an iceberg order work – let’s get into it.
What is Iceberg Order in Crypto?
In essence, an iceberg order is a big trading order divided into different smaller chunks.
It 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.
Thus, 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.
Why Use Iceberg Orders?
Investors divide a large order into several small pieces and place them on the market 1:1 with the use of iceberg orders when they want to buy or sell large quantities of crypto. 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.
How Does an Iceberg Order Work?
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.
Who Uses Iceberg Orders?
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 large 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’s 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.
Closing Thoughts
Now that you have learnt what is iceberg order in crypto and how does an iceberg order work, they are a popular way to buy or sell large amounts of cryptocurrency without moving the market. And if you’re a small investor, you can still take advantage of these orders by placing orders at the same price.
