Quick definition An order that does not display any quantity on the book but can execute against incoming orders at full size. What it is A hidden order rests on the book with zero displayed quantity. The order is invisible to other market participants. When an incoming order is routed to that price level, the hidden order can execute against it. The execution is visible as a trade in the tape, but the original hidden order did not appear on the book. Why it matters Hidden orders allow large institutional traders to accumulate positions without revealing their interest to the market. A fund wanting to buy 50,000 shares can submit a hidden order instead of displaying it to the market, which would likely move the price against the fund before the order is fully filled. Practical example A fund wants to buy 50,000 shares of a stock. If the fund displays this large order, other traders would see it and likely increase their ask prices, making the fund's execution more expensive. Instead, the fund submits a hidden buy order for 50,000 shares at a specified price. The order does not appear on the book. When a seller submits shares at that price, the hidden order executes. Hidden Order versus Reserve Order A reserve order displays some quantity on the book and hides the remainder. A hidden order displays zero quantity, though the full order can execute. Execution behaviour Hidden orders have the same execution rules as displayed orders. They queue behind displayed orders at the same price level according to time priority (in most venues). The key difference is that other market participants cannot see them. Detection of hidden orders Experienced traders sometimes infer the presence of hidden orders by observing large executions at prices where no visible orders appear on the book. However, hidden orders cannot be directly detected from the public book data. Regulatory considerations Hidden orders are supported on most US equity exchanges. Brokers have the right to accept hidden orders, but they do not have the obligation. Some brokers do not offer hidden orders to retail clients. Market impact of hidden orders Hidden orders can reduce market transparency because large interest in the market may not be visible. Some regulators have expressed concern that excessive use of hidden orders reduces price discovery. See also - Reserve order - Order book - Depth of book
