How Do High-Frequency Trading (HFT) Algorithms Attempt to Detect and Exploit Iceberg Orders?

HFT algorithms detect iceberg orders by identifying patterns of small, recurring orders at the same price level from the same source. They analyze the speed and size of these "refreshes" to the order book to estimate the hidden volume.

Once an iceberg is suspected, HFTs can exploit it by "front-running," placing their own orders ahead of the iceberg's subsequent tranches to profit from the anticipated price impact. They can also use strategies to trigger the release of more of the hidden order to gauge its full size.