The navigation of an iceberg: The optimal use of hidden orders

Market participants with large orders to execute are often reluctant to expose these to an open order book in their entirety in order to avoid a potential adverse market impact. Therefore, investors often split large orders into smaller tranches. Iceberg orders facilitate these trading practices by executing such business automatically in the order book. This article analyzes the rationale for the use of iceberg orders by assessing the costs and benefits of this trading instrument.