Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated September 30, 2020

What is an Iceberg Order?

An iceberg order is a large order that has been split into several smaller orders to conceal the "real" size of the order.

How Does an Iceberg Order Work?

Let's assume Company XYZ is a $50 billion pension fund. It often buys and sells shares of stock in 100,000 units. Today, the fund manager wants to sell off the fund's 250,000-share position in Company ABC, which it believes has peaked.

The average order volume for Company ABC stock is 25,000. An order 10 times that size would surely cause a stir in the market and likely encourage other investors to sell their shares, too. In turn, a sudden, massive sell-off could tank the price of the stock while Company XYZ is trying to execute the trade. In turn, it might only be able to sell the shares for, say, $10 a share rather than the $15 they're currently trading at.

To mitigate this, Company XYZ puts in an iceberg order, which breaks the 250,000-share sell order into 10 orders of 25,000 shares each. These orders, executed individually over a specified time (usually days or weeks), look like ordinary trades to the rest of the market, which will not get the tip-off that a major investor is bailing out. Each of these 25,000-share trades are "just the tip of the iceberg."

Why Does an Iceberg Order Matter?

Iceberg orders seem sneaky, and to some extent they are, in that the market does not know that the same shareholder is selling all those shares. However, iceberg orders also stabilize the market and help prevent major swings in stock prices, which is why some exchanges offer support and services to members who want to book iceberg orders.

Ask an Expert about Iceberg Order
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Iceberg Order.
Be the first to ask a question

If you have a question about Iceberg Order, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Iceberg Order, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Iceberg Order

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms