Hidden Orders

Some traders do not care whether market participants see the orders they have submitted. Other traders do care, and are likely to submit __hidden orders__ that are shown only to their brokers or to the exchanges themselves. Hidden orders are not revealed to other market participants until they can be completed.

What type of trader do you think would be likely to submit a hidden order?

Incorrect. A large conglomerate will have average daily trading volume that greatly exceeds 1,000 shares, so this order size is unlikely to alter the trading strategies of other market participants if it is disclosed prior to execution.

Correct! Although institutional investors typically have significant portfolio assets available for investment, it is not their role as institutional investors that determines their likelihood of submitting hidden orders. Rather, it is the size of the order that will influence the trader's intention. A 50,000 share trade for a stock that only trades 200,000 shares per day is a large order. Other traders could alter their own trading strategies if they were to find out about a particularly large order coming to the market. It is exactly this sort of behavior that hidden orders were created to prevent.

Incorrect. An institutional money manager looking to sell 75,000 shares, when several million shares of stock change hands each day, represents a relatively small share of the stock's overall trading volume. Hidden orders do not have to be placed only by large investors, and it does not matter whether the trade is a buy order or a sell order.

Traders with large orders who do not want to reveal the true size of their trades may choose to have only part of their order size shown to the market. Their __display size__ can be considerably smaller than the actual size of their trade. Their trade is a bit like an iceberg, since only part of it is visible. For this good reason, these are often called __iceberg orders__. The entire order can still be filled if an order enters the market on the other side of the trade. In this case, traders willing to transact at the displayed size will be shown the remaining portion of the order if they want to execute an even larger size trade that resembles the hidden order size.

What do you think might be a drawback for a trader submitting a hidden order?

Correct.

Incorrect.

To summarize: [[summary]]

Hidden orders are, by definition, not visible to other market participants. As such, there may be other parties willing to assume the other side of a large trade, but they would likely not be aware of the order's existence. Being invisible has its benefits and its pitfalls. The entire reason why a trader would want to submit a hidden order is because he is concerned about the adverse price impact that such a disclosure could have on his trade. The realized price for a large order coming to the market uncloaked is not likely to be as favorable as the price which emerges from a hidden order.

A family wealth manager that wants to buy 1,000 shares of stock in a large conglomerate

An institutional investor that wants to buy 50,000 shares of a stock that has average daily trading volume of 200,000 shares

An institutional investor that wants to sell 75,000 shares of a stock that has average trading volume of several million shares

The trader may not secure a price for his trade as favorable as the one he could obtain if his large order was disseminated to the market

Other traders that are willing to trade at that size may not be aware of the presence of the entire order

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