Hidden Order

As a trader, you must have come across the term 'hidden order.' But do you understand what it means and how it can affect your trades? In this blog post, we will explore the concept of hidden orders and its implications on your trading.

What is a Hidden Order?

A hidden order is an order that is placed on an exchange but is not visible to other traders. It is a type of order that is hidden from the order book and is not published on the exchange's order book. Hidden orders are also known as iceberg orders, as they are like the tip of the iceberg, with only a small portion visible while the rest is hidden under the surface.

Why Use Hidden Orders?

The main reason for using a hidden order is to prevent other traders from knowing your trading intentions. By keeping your orders hidden, you can prevent other traders from seeing your orders and potentially front-running them. Front-running occurs when a trader places an order ahead of another trader's order, in anticipation of the latter's trade moving the market in their favor. Hidden orders help to prevent this kind of behavior from other traders.

How Do Hidden Orders Work?

Hidden orders work by executing a small portion of the order on the exchange's order book, while the rest of the order remains hidden. For example, if a trader wants to buy 1000 BTC, instead of placing an order for the entire amount, they can place a hidden order to buy 100 BTC. This hidden order can be executed without revealing the trader's intentions to other traders, as the order book will only show a small fraction of the actual order.

Pros and Cons of Hidden Orders

Like any trading strategy, hidden orders have their pros and cons. Let's take a look:

Pros:

• Prevents other traders from front-running your trades
• Allows you to keep your trading intentions private
• Can help to reduce slippage and market impact

Cons:

• Can make it difficult to determine the true liquidity of the market
• May result in missed trading opportunities if your hidden order is not executed in time
• May lead to price manipulation if many traders use hidden orders at the same time

Conclusion

Hidden orders are an important tool in a trader's arsenal to protect their trading intentions from other traders. They help to prevent front-running and reduce market impact, but they also have their drawbacks. As with any trading strategy, it's essential to weigh the pros and cons before utilizing hidden orders. At Algoine, our team is continuously working to improve our platform and provide the best trading tools and resources for our users.