Lesson 5 of 7 · 2 min
Hidden liquidity
Icebergs, spoof-like behaviour, and why the book never shows the whole picture.
The order book shows displayed liquidity. It never shows everything participants intend to do.
What you can't see
- Iceberg (reserve) orders — a large order that shows only a small visible portion and refills it as it trades.
- Orders not yet sent — many large participants work orders through algorithms that release small pieces over time.
- Liquidity in related markets — index futures, ETFs, options and the underlying stocks are linked by arbitrage; liquidity can appear in one when it's needed in another.
Displayed size can disappear
Displayed orders can be cancelled at any time. Large resting orders sometimes vanish as price approaches. Placing orders you don't intend to execute in order to mislead others (spoofing) is illegal, but legitimate participants also cancel and reprice constantly, so a disappearing order is not evidence of wrongdoing.
Key Insight
Put more weight on what traded (volume, executions, absorption) than on what's displayed. A displayed order is an intention; a trade is a fact.
Signs of hidden liquidity
- Repeated trades at one price that exceed the displayed size, with the level holding.
- A level that keeps refilling after being hit.
Trading implication
Treat the book as a hint about intent and the tape/footprint as the evidence.
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