When you visualize an iceberg in nature you picture a large, floating mass of ice, seemingly serene as it floats along the ocean. In truth a lot more is going on around the block of ice then you might think. If you observe closely you will note that small pieces are constantly falling off – and that is the crux of the matter. No iceberg is actually a single piece of ice; it is many pieces held together by a common purpose. An iceberg order has a similar structure.
In the investment world, an iceberg order is a single, large order which has been segmented into smaller lots. This is typically managed through the use of some sort of automated program, which allows the purchasers to hide their actual order quantity. There are several key advantages to making the total purchase in this clandestine manner.
The goal behind using an iceberg order is that it allows large investors to hide their purchases or sales. This means that the public will only notice a small portion of the total order – the ‘tip of the iceberg’ is all that is visible, if the process is handled correctly. The key advantage from the perspective of the entity behind such transactions is that price movements are reduced, potentially decreasing the risk of having shares over bought or sold in response. When the iceberg order is complete the purchaser will still have the total number of shares desired, without tipping their hand and causing an increase in price.