The term iceberg order is synonymous with the term reserve order. This is an order placed with a stock broker by an investor which instructs the broker to break down the order into multiple, smaller orders. These smaller orders are then placed with the stock exchange individually.
Iceberg orders are useful when a large number of shares in the same stock are bought or sold. Making many small orders and staggering these over time helps to prevent the order from affecting the price of the stock.
Putting a large number of the same security up for sale at one time creates a strong supply of that security, which can cause the price of the security to drop. This could result in the seller making a lower profit off the sale than they anticipated based on the original market price.
By the same token, trying to buy a large amount of a security at one time creates a strong demand in the market which can cause sellers to raise their prices, resulting in the buyer paying more than anticipated for the total purchase.
An iceberg order helps to prevent supply or demand for a security – and therefore its price – from being negatively affected by breaking up the large order into a series of small orders.
Special requirements and limitations may apply to iceberg orders. For example, the SIX Swiss Exchange only accepts iceberg orders with a minimum value of 10,000 Swiss francs.