Spot iceberg orders on Level 2

Big traders rarely show their full size. A fund selling 50,000 shares will display 100 or 200 at a time on one venue and let the exchange refill it each time it trades, so the book never shows the wall. Watching the tape against the book is how you catch it: far more stock trades at a price than was ever displayed there. Scalpel does that watching for you, on every desk.

What it looks like

• The icon sits in the slot beside the price: left of the price on the bid side, right of it on the ask. On the coloured rows (By price tier or By venue) it is drawn dark, like the row's text.
• With colouring Off, the icon is cyan and the price turns cyan too, so it stands out on the plain rows:

• The read line under the summary bar takes its own cyan layers icon and names the side: Hidden seller refilling at the offer for an iceberg on the ask, Hidden buyer refilling at the bid for one on the bid. If there is one on each side, it names the seller.
• With grouping on (the - Tick + stepper), the icon marks the grouped row that contains the iceberg's price.

The exact rule

Scalpel watches each venue's quote at each price separately. A row gets the icon when all of these are true within a rolling 20-second window:

Only lit prints count, the trades that happen on an exchange's displayed book. Off-exchange prints never touched the book, so they cannot refill it.

When it clears. The icon stays for up to 30 seconds after the rule last fired, as long as the level holds. It goes sooner if a lit trade prints through the price (above a hidden seller, below a hidden buyer) or the inside moves away from it. It can fire again for the same venue and price after 20 seconds.

A worked example

In the shot, IEX displays 145 shares at 5.71 and never more. Over 15 seconds, buyers lift IEX's offer in three separate bursts of 900, 1,200 and 800 shares:

• 3 hits, more than a second apart: passes.
• 2,900 shares x $5.71 = $16,559 traded: over $15,000, passes.
• 2,900 shares against at most 145 shown is 20 times: over 3 times, passes.
• IEX is still showing 145 at 5.71, and the best ask is still 5.71: passes.

The icon goes on IEX's row. Someone with a lot more than 145 shares is selling at 5.71.

Why so strict: a busy price on a momentum stock refills all the time because many different traders join it, spread across venues. One venue's quote pinned at a small size while it trades many times that size is the pattern of one reserve order, and the $15,000 floor keeps small odd-lot activity from setting it off.

How to trade around it

Scalpel is long only, so the two cases mean different things for you:

• A hidden seller at the offer, above you or where you want to buy. Every share you buy there comes from a seller with more stock than the book admits. A breakout into a hidden seller can stall until the seller is done. Many traders wait for the icon to clear because a lit trade printed above the price: that is the seller finished or gone, and the offer is open. Buying into the iceberg itself is buying where supply is deepest.
• A hidden buyer at the bid, under your long. It is tempting to treat it as a floor and put your stop just under it. Don't rely on it (see below). Put your stop where your trade is wrong, whatever the book shows (guide 5.1).

Icebergs are one of several behaviours that give away a big trader; the others (unusual size, size pulled as price comes near, bids stepping up, who is hitting and lifting) are in guide 3.7.

What it cannot see

• Off-exchange buying and selling. Dark pools and internalised retail orders never show on any book.
• Icebergs that move. A reserve order that re-prices with the market, or splits across venues, does not keep one venue's quote pinned and will not trip the rule.
• Small ones. Under $15,000 traded in 20 seconds, nothing is flagged, by design.
• Spoofing. Size shown and pulled to mislead is the opposite pattern: watch for size that vanishes as price approaches (guide 3.1).

The full story of the replay is in the blog post Reading the Level 2 montage.