Icebergs sink ships. Prowlers hide and seek!

The point of an ICEBERG order type has always been to hide your flow from the rest of the market, allowing you to fly under the radar of the massive trading firms looking to prey on naïve order flow.  You know, like the old adage of 90% of an iceberg’s mass being underwater, hidden from view.

But if everyone has an iceberg order type, with even the CME Group having an ICEBERG order type with similar intended logic, does anyone get a benefit from using one of the first “smart” order types used by sophisticated trading firms? To dive into that, it’s important to understand what exactly Iceberg orders do how exchanges like the CME treat them.

For starters, native ICEBERG orders aren’t exactly hidden…at least not like they used to be. It started when the CME changed the way the order book is displayed, from Market by Price (MBP) to Market by Order (MBO), meaning they now use the same exchange-assigned OrderIDs for the entire life of an order.

What that OrderID dilemma means to you as a trader is that when an order hits the book, that defined OrderID is visible to everyone else in the world. And so, if you’re placing orders one at a time you have little reason to worry, because your second order will have a different ID than the first. However, if that second order is a replenishing order coming from a simplistic ICEBERG execution algo, that new order will have the same ID as the last when the displayed quantity is refreshed! And as you can guess, because it has the same ID, sophisticated prop shops and other market makers watching the book closely can see your old orders disappear and your new ones pop up. Said another way, those ICEBERGs that were once hiding harmlessly in the depths of the water/order book are now floating to the surface, as if holding a giant neon sign advertising themselves to passing cruise ships.

Ultimately, native ICEBERGs can be easily found by anyone who knows what to look for (and experienced traders and big shops are particularly good at this game of hide and seek). Synthetic ICEBERGs however, are the trading world’s way of combating the Market by Order (MBO) predicament. They’re better than exchange native ones, plain and simple. But it’s not that black and white, because even synthetic ICEBERGs aren’t all created the same. Enter RCM-X’s newly revised and enhanced ICEBERG-like algo, PROWLER.

With several adjustable parameters PROWLER submerges the ICEBERG, hiding it from your contra-trading participants while allowing you to capture as much alpha as possible. PROWLER includes all of the basics when it comes to ICEBERG orders, such as Min & Max show for order sizes and IOC orders to take the liquidity in the book. But PROWLER goes far beyond the limits of your typical ICEBERG, starting with the fact that the child order refresh is done by us, not the exchange. This means that when the order is refreshed, it hits the exchange like a new order all together, and that means a new OrderID.

Some of the features such as AverageDelay, MinAggressQty, and PassivePriceLevel give traders the ability for more customization to fit their trading style than ever. AverageDelay can be used to specify an optional random delay (in seconds) between sending new or replacing existing child orders, giving your orders an extra piece of anti-gaming camouflage. MinAggressQty, optionally sets a minimum quantity that needs to be available at the order book’s top price level before taking liquidity. PassivePriceLevel (see example below), matches the price of the selected level in the book (capped by limit price), and will subsequently Cancel/Replace the child price to peg to that book level. Meaning that rather than eating through levels of the book as the price moves, PROWLER protects you by moving with the market.

Much like the bulk of an actual iceberg is just sitting there underwater, waiting to be discovered – so too are native ICEBERG orders. We renamed the algo to better reflect that new methodology, whereby the mass of the order isn’t there waiting to be found, but rather hiding there one second, then gone the next, before popping up somewhere else, then back into hiding, and so forth; prowling the market for an advantage.

For more information about PROWLER, the new features we’ve given it, or any other information regarding RCM-X, contact us at [email protected] to benefit from our automated execution experience. We’ll help you find the optimal use case for PROWLER – be it an advanced ICEBERG, a sniper like algo, a peg, or all the above.

PassivePriceLevel Example:


For this example assume the trader is pegging to PassivePriceLevel 2 (PPL 2). Lets say the market starts to trend upwards (1) to 10.02. Because PPL 2 is set, the peg will follow the market up (2), staying 2 levels below the current price, to 10. Then say the market begins to fall (3) a couple points, when the price hits 10 the order will be elected beceause that’s where the peg sits.

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