What Are Iceberg Orders & How Do Large Institutional Investors Conduct Them in 2025?

Iceberg orders are used to split large trade orders into smaller, visible parts, in order to hide the full order size. Institutional investors use this approach to minimize market impact when buying or selling large positions. Key aspects include the visible and hidden portions, execution algorithms, and regulatory considerations. As of 2025, AI-driven execution systems can now dynamically adjust iceberg order parameters based on real-time market conditions. Enhanced market monitoring employs complex detection mechanisms, with pattern recognition AI and time-series associations showing high effectiveness. Institutional investors are also applying iceberg strategies across multiple asset classes simultaneously, adapting to an increasingly complex trading environment while maintaining market anonymity.

Latest developments in 2025

In 2025, with advancements in technology, iceberg orders have evolved, presenting a new model of institutional trading behavior:

AI-driven execution system

Modern institutional investors are now using artificial intelligence algorithms to dynamically adjust iceberg order parameters based on real-time market conditions. These systems can:

• Analyze market liquidity patterns to optimize order size
• Forecast the best time windows for slice execution
• Automatically adapt to changing volatility conditions

Enhanced Market Surveillance

The regulatory platform has developed a more complex detection mechanism to identify iceberg orders:

Cross-asset class application

Institutional investors are now applying iceberg strategies across multiple asset classes simultaneously, creating diversified execution methods while maintaining market anonymity.
This evolution demonstrates how market participants continually refine execution strategies to accommodate the demands of large institutional orders in an increasingly complex trading environment while preserving natural market price discovery.

[TL; DR]

Every market has two important forces: demand and supply. These market forces also apply to capital markets. Stock prices often either skyrocket or plummet, which is a direct response to the levels of demand and supply present in the market.

A single purchase by large institutional investors can significantly impact the market, as they attempt to “hide” their activities to avoid distorting the actual demand and supply forces in the stock market. They buy and sell in smaller unit orders. This strategy is quite popular and is known as “iceberg orders.”

This article attempts to unveil the mystery of iceberg orders and how large institutional investors execute these orders.

Iceberg Order

Iceberg orders, sometimes referred to as reserve orders, refer to the process of breaking down a large, single order into smaller orders to be executed over a specified period. This segmentation is usually carried out automatically by a program established for this purpose.

“The term iceberg originates from the idea that each smaller batch is just the tip of the iceberg, related to the larger volume of orders to be placed. Iceberg orders conceal the original quantity that has already been or will be ordered. These orders are primarily adopted by large institutional investors who wish to buy and sell large quantities of securities without distorting the market.”

They masked the scale of orders, reducing price fluctuations in the market, which may be due to significant changes in the demand and supply of stocks.

institutional investors

Institutional investors can be a company or an organization that seeks investment funds on behalf of several other individuals. In our modern world, examples of this are numerous, such as insurance companies, mutual funds, and pension funds.

These companies tend to buy large blocks of securities, such as stocks, bonds, or others, which has earned them this nickname. The scale of their purchases is significant, hence they are referred to as “whales of Wall Street.”

Generally, there are six (6) types of institutional investors. They include:

• Endowment funds;
• Mutual funds;
• Hedge funds;
• Commercial banks;
• Pension funds;

These mature investors are subject to fewer restrictive laws than the average person. This is because it is generally believed that institutional companies have more knowledge to protect themselves from the influence of market forces.

Market Order and Limit Order

Iceberg orders are executed using limit orders. This is quite different from regular market orders.

Limit Order

A limit order refers to an order that sets the maximum acceptable price for selling or buying securities before a purchase order. Here, the minimum acceptable price is always specified on the sell order.

Limit orders allow investors to gain control over their buy and sell trades. Through limit orders:

1. It can ensure that the specified price does not deviate too far from the market entry or exit point of the trade. Essentially, if the value of a security exceeds the limit of the order, the trade will not occur.
2. If it is a low-volume stock that is not listed on major exchanges, limit orders are a viable option, as there may be difficulties in trying to calculate the actual price of the security.

However, limit orders also have their drawbacks. For example:

1. If the actual market price never drops to the order criteria, this type of trade may never be executed.
2. It is also possible to reach the desired target price, but due to decreased liquidity at the ideal price, this can lead to a partially filled order, or even a completely unfilled order.

Market Order

On the other hand, market orders emphasize the speed of trade completion rather than the price of the securities being traded. They are relatively traditional orders: brokers collect trading orders for the securities and then process them at the current market price.

It is worth noting that although market orders are more likely to be executed, this does not mean that all market orders can go through.

1. All market order transactions are determined by the availability of preferred stocks. Due to execution time, liquidity, and other factors affecting stocks, market orders may vary significantly.
2. Market volatility often threatens the price of orders, primarily when the order occurs between the time the broker receives the order and the actual execution of the order. This impact of market volatility usually affects large orders, which require time. For example, market orders placed after trading hours will be executed at the opening price of the next trading day.

Market orders can shift the position of the market.

Why do large institutional investors execute iceberg orders?

Iceberg orders have many reasons:

1. One effective reason is to avoid panic buying in the market. Purchasing such a large amount of securities with camouflaged, smaller amounts conceals the selling pressure that such orders might cause.
2. Iceberg orders also reduce the impact cost of execution. Impact cost refers to the difference between the actual price of a security trade and the price of the security at the time of placing the order.
3. Additionally, institutional investors may aim to buy such stocks at the lowest possible price. Therefore, they will avoid large orders to prevent other traders from driving up the stock price.

Research even shows Some traders may also place orders similar to iceberg orders to reduce the impact of such orders on the overall market, further increasing market liquidity.

Example of iceberg order

After evaluating a company and its stock in the capital market, a mutual fund intends to purchase approximately 300,000 shares of this specific company.

Every day, the average trading volume of the company’s stock is 50,000 shares. This is the total amount of stock bought and sold by the company each day.

Take a close look at this situation; the institutional investor (mutual fund) wants to buy six times the total amount of stocks that the company trades daily. To emphasize this, the amount that the mutual fund wants to purchase exceeds the sum of the stocks bought and sold each day.

Mutual funds can decide to place the next order to buy all 300,000 shares at once. However, this would drive the market into a frenzy:

1. Other traders would notice the orders in the stock market and assume that the mutual fund has insider information, which would lead to a rise in the company’s stock price in the market.
2. Due to the price increase, in subsequent orders, the price per share would increase significantly, and institutional investors would have to purchase smaller units at a larger price.

To avoid this situation, the mutual fund manager can decide to complete an order of 300,000 shares in installments of 6,000 shares.

Once the limit order for 6,000 shares is completed, it will trigger the next limit order to buy 6,000 shares. This cycle will continue for a total of 48 times, spread across many trading days, weeks, and months, until the required number of shares is purchased.

Recognize iceberg orders

For individual traders, it is possible to identify iceberg orders originating from a single market maker. During the trading process, this limitation will continue to reappear.
For example, in a situation where an institutional investor wants to purchase 1,000,000 shares in 10 orders of 100,000 shares each, the trader must observe the patterns and trends of the stock to discover that these orders are being filled.

For those looking to capitalize on this trend, they began buying stocks that were just above the average level and learned that iceberg orders based on limit orders created strong support for this type of trading. Identifying iceberg orders created a scalping profit opportunity for traders.

Conclusion

Iceberg orders provide a structured and seamless trading avenue, where substantial market fluctuations can be avoided, and the forces of demand and supply are not distorted. This is a method used by large institutional investors to avoid triggering panic buying in the market, as this ultimately does not benefit their cooperation with client funds in the long run. It is conducted through limit orders and maintains the market conditions necessary to uphold those limit orders.