Quick definition An order that shows only a portion of the total quantity on the book, with the remainder hidden. As the visible portion fills, additional quantity is automatically refreshed and displayed. What it is A reserve order (also called an iceberg order) rests on the book with two quantities: the displayed size and the reserve size. The book shows only the displayed size. As orders execute against it, the displayed size decreases. When the displayed portion is fully executed, the venue automatically refreshes the displayed size from the reserve. Why it matters Reserve orders allow large orders to be placed without displaying the full size to the market. A trader wanting to buy 100,000 shares might display only 1,000 shares at a time. This prevents the market from moving significantly in advance of the large order. The reserve remains hidden and is refreshed automatically as the displayed quantity executes. Practical example A trader places a buy order for 100,000 shares with a displayed size of 5,000 and a reserve of 95,000. The book shows the order as 5,000 shares available. Other traders see the order as a 5,000 share buy interest. As 3,000 shares are bought, the displayed size automatically refreshes to 5,000 again, drawn from the reserve of 92,000. Reserve order versus Hidden Order A hidden order displays zero quantity on the book. A reserve order displays a portion. Both orders protect the trader's total size from being visible to other market participants. Market impact Reserve orders significantly reduce market impact. Instead of a market that sees a 100,000 share buy order, the market sees a series of 5,000 share orders. This can result in better execution prices. Regulatory considerations Reserve orders are supported on most US equity exchanges. The displayed portion must be at least one round lot (typically 100 shares for equities). International exchanges have varying rules on reserve order disclosure and minimum displayed sizes. Detection of iceberg orders Sophisticated traders sometimes attempt to detect iceberg orders by observing that orders at a particular price level repeatedly refresh at exactly the same size. This can inform trading strategies. See also - Hidden order - Order book - Depth of book
