An iceberg order is a large order broken into smaller visible chunks. Only a small portion is shown on the DOM, while the rest remains hidden that stack on that same small level.
For example:
If I’m a large institution looking to short sells 500 contracts, I can’t just hit the market where price is currently trading. There simply would not be enough passive buyers sitting on the Bid to absorb my full size. If I were to dump the entire order at once, the book would thin out instantly — the Bid would collapse several ticks as my order would be hunted for liquidity, and I’d suffer massive slippage.
That’s why institutions rely on iceberg orders: instead of showing the full 500, they’ll only display a small portion on the DOM. The rest sits hidden, refreshing as visible size gets hit, allowing them to execute size without telegraphing intent or blowing through levels of liquidity.
How It Works:
A trader wants to buy 10,000 shares but only shows 500 on the DOM.
As the 500 gets filled, another 500 appears—automatically replenished from the hidden reserve.
This continues until the full 10,000 is executed. This is a bit extreme but this is the logical extension of the concept (gosh darn I sound like a nerd).
When an institution works a large position with an iceberg, they are hiding true size at a price level. On the DOM it might only show 20 or 30 contracts sitting on the bid, but as aggressive sellers keep hitting that level, it continues to refresh and absorb far more than what is displayed. For an Orderflow trader, this becomes an important signal. If one price level repeatedly reloads while heavy volume trades into it without breaking, it is showing strong hidden interest from larger players. Short-term traders may assume the level will eventually break since it keeps getting hit, so they enter in the direction of the pressure. When the iceberg absorbs all that selling and price holds, those traders are now trapped.
That absorption can be used as an entry trigger. If a bid is absorbing and price is holding, it can confirm a long entry above that level. If an offer is absorbing and capping price, it can confirm a short entry below that level.