What Is an Iceberg Order?

An iceberg order is a type of transaction that can take place in the financial markets which involves splitting up a large order into several smaller pieces. Instead of making one large order, the investor decides to make smaller orders of the same security simultaneously. 

The benefit of using an iceberg order is that other investors will not see such a large order to take place at once. When extremely large orders come through, it often has the effect of changing the price of the securities. This type of order is commonly used with institutional investors that have large amounts of assets under their control. Instead of putting all their money into the market at once, they spread it out so that no one will be tipped off as to what they are doing.

Many times, its investors find out that a particular institutional investor is investing in a security, they will try to pick up some shares at the same time. By doing this, they can take advantage of the large amounts of research about the institutional investor has most likely engaged in. Institutional investors do not like smaller investors to do this because it makes it difficult to get the shares that they need.