Detecting Hidden Liquidity

An iceberg order shows a small "tip" — say 100 shares — while a much larger reserve, invisible to the book, refills the tip automatically each time it's filled. A trader watching only the displayed size sees a level that never seems to run out, and that's the tell.

A worked example

The offer at 50.02 displays 100 shares. A trader sends a 100-share market buy — it fills, and the level goes to zero. One second later, the displayed size at 50.02 is back to 100. The trader buys another 100; it fills again, and again the level refills to 100 almost instantly.

A genuine, non-iceberg level of 100 shares would show zero after the first fill and stay at zero until some new trader chose to add fresh size — an event with no particular reason to happen within a second, repeatedly, at exactly 100 shares each time. An iceberg reveals itself through this pattern: constant displayed size, refilling immediately after every execution, usually in round tip-sized increments. After five such refills the trader has bought 500 shares at 50.02 without the displayed size ever suggesting more than 100 was available — the true reserve is at least 500, and probably more.

Where it's used. Liquidity-seeking execution algorithms probe suspected iceberg levels deliberately, sending small IOC orders to "ping" a price and see whether it refills, before committing a larger slice there. Market makers watch for icebergs on the far side of the book to judge true resistance, since a level that keeps absorbing size without moving is a much stronger signal than displayed depth alone suggests. And Order Book Features For Machine Learning pipelines sometimes engineer a "refill rate" feature per price level for exactly this reason.