05 May , 2022 By : Kanchan Joshi
Zerodha, one of the country's largest online brokerages, has introduced “Iceberg orders on Kite to slice large orders into smaller legs that are executed only once the previous leg is, helping reduce impact costs", its founder and CEO Nithin Kamath said on Thursday.
The Zerodha CEO said that active traders lose much more to impact costs than all charges, especially with larger trades.
Impact cost represents the difference in the actual traded price as compared to the price of the instrument when the order was placed.
Kamath said, “Impact cost, or the money a trader loses in the bid-ask spreads, increases substantially with high volumes or overtrading. Given the very low brokerage costs, it is easy to think that quick buy & sells at small price difference can generate profits, but very tough in reality."
He explained it with an example: If an option is at Rs50 & the bid-ask spread is Rs0.5, in 10 trades, a trader will lose Rs5 or 10% of the premium.
“To profit, a trader not only has to get the direction right, but also be right by a margin of 10% (impact cost) Most traders ignore to factor this in," Kamath said.
He added, “You can now also set the validity of all order types in minutes. This can help traders who want orders to be cancelled if not executed within a certain time after a trading signal is generated or after a few minutes of the market opening or a news event & more."
What is an Iceberg order?
Iceberg is an order type that slices orders of larger quantity (or value) into smaller orders, where each small order, or leg, is sent to the exchange only after the previous order is filled.
This helps reduce the impact cost of execution in addition to not revealing large orders in the market depth bids and offers. Icebergs are a very popular order type amongst institutional traders, and we are excited to introduce this to the retail traders in India.
How do Icebergs work?
When a large order is placed, it is divided into smaller orders or legs, and only the first leg is placed on the exchange at first, revealing only the tip of the iceberg. Once this leg is executed, the next leg of the main order is placed, and so on, until the desired quantity is traded. The number of legs is decided by the customer.
Follow these steps to place an Iceberg order:
Click on Iceberg on the order window.
Select Intraday or Overnight.
Enter Quantity and the Price.
Select Market or Limit.
Enter the Number of legs and click on Buy or Sell. The maximum number of legs per Iceberg is 10.
0 Comment