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Session 3.15: Hidden Liquidity - Evidence from the Introduction of Iceberg Orders
Time:
Wednesday, 27/Aug/2025:
10:00am - 10:30am
Location:Mikado Conference hall
Meeting hall “Mikado”, which can accommodate up to 50 people
Presentations
Hidden Liquidity - Evidence from the Introduction of Iceberg Orders
Prof. Stefan Scharnowski
University of Mannheim, Germany
This paper analyzes the effects of hidden liquidity by studying the introduction of iceberg orders at a large cryptocurrency exchange. Compared to other assets, cryptocurrencies often trade against both fiat currencies and pegged stablecoins. Considering the introduction of iceberg orders for trading pairs against the US dollar but not against a dollar-pegged stablecoin, this study finds that hidden liquidity is associated with increased quoting and trading activity. Larger average trade sizes suggest greater institutional participation. Liquidity improves through tighter spreads and deeper depth, while the price impact of trades declines. Realized spreads increase, indicating improved revenues for market makers while also offering enhanced execution conditions for liquidity takers. Price discovery also shifts significantly toward the markets accepting iceberg orders. Overall, our results suggest that hidden liquidity has positive effects on market quality.
