Iceberg Orders: Definition, how it Works and Example
Definition
Iceberg order is a type of order used in the stock market to avoid unnecessary fluctuations in the stock prices. Iceberg order slices orders of larger quantity into smaller orders, where each small order is sent to the exchange only after filling of previous orders.
You might be wondering why companies and shareholders would doing iceberg trading to split the orders into smaller size orders. Well, it is done to hide the exact size and value of large size orders.
In other words, iceberg orders can be defined as the large orders that the shareholder divides into several smaller lots to conceal the actual size and value of the order.
How do Icebergs work?
When a large order is placed, it is divided into smaller orders or legs, and only the first leg is placed on the exchange at first, to reveal only the tip of the iceberg, after this next leg of the main order is placed, and so on, until the desired quantity is traded. The number of legs is decided by the traders itself.
First of all, you need to open your demat account in one of the Broker.
Follow these simple steps to place an Iceberg order:
1. Click on Iceberg button on the order window
2. Select Intraday/Overnight
3. Enter Quantity and stock price
4. Select Market or limit order type
Example scenario for Iceberg
An order for Nifty CE of 2000 quantity (40 lots) can be divided into 5 orders of 400 each by selecting the number of legs. This way, every subsequent order of 400 will be executed only once the previous orders are executed.
Important point to Iceberg Order
1. Since each leg acts as a separate order, the brokerage is charged separately. If the order is split into 5 legs, then the brokerage will be applicable to all 5 execute orders individually.
2. The minimum order value is Rs.1,00,000 for equity segment and 5 lots for FnO.
3. Icebergs can’t be used in case of market and SL-M order type on BSE.
4. Iceberg orders and minute validity are not supported during pre-opening and post-market sessions.
5. If one leg of an iceberg order is cancelled then all the remaining pending legs are automatically cancelled.
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