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I have noticed one unusual characteristic in the US market. There are hidden bids and offers in the US stock market and this affects mainly the more illiquid small-cap stocks. Say, Stock ABC has a bid price of 10.50 and offer price of 10.55 shown on the tape provided by the broker. In actual fact, there are hidden bids and offers within the bid-offer spread shown officially on the tape. I know because sometimes I can get an immediate fill if I key in a price between the spread.

Can someone more knowledgeable explain? Thank you. This phenomenon mainly hits stocks with wide bid-offer spread. Highly liquid big-cap stocks are not affected.

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When you place a bid between the bid/ask spread, that means you are raising the bid (or lowering the ask, if you are selling). The NBBO (national best bid and offer) is now changed because of your action, and yes, certain kinds of orders may be set to react to that (a higher bid or lower ask triggering them), also many algorithms (that haven't already queued an order simply waiting for a trigger, like in a stop limit) read the bid and ask and are programmed to then place an order at that point.

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    Thanks for the answer. I guess the hidden bids/offers are mostly due to computer algorithms which can monitor the official bid-ask prices on the exchanges and react within split-seconds when the desired price appears on the tape.
    – curious
    Oct 6, 2013 at 4:16
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    @Victor: Depends on the exchange and/or your broker. E.g. the Dukascopy ECN will only let you trigger stop orders on bid and offer prices (and sizes); dark pools (if they support it all) will follow this practice as well
    – hroptatyr
    Oct 10, 2013 at 8:20
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    @hroptatyr - you are talking about FX, whilst the OP and I are talking about stocks. Every broker I have come across for stocks have the stops being triggered only when a trade takes place at or below the stop-sell price or at or above the stop-buy price. Why would you want your stop to be triggered unless there is an actual trade at that price? You could be stopped out when there is a large spread and no actual trade - now that doesn't make sense to me !!!
    – Victor
    Oct 11, 2013 at 10:17
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    @Victor: True, but seeing as you cite Interactive Brokers, they do support stop trigger at bid/ask price (for stocks!); it's just not the default; see Trigger Method on the order ticket. As to why you'd want that, well, there are arbitrage and scalping strategies that require you to close/open positions once the quote moves below/beyond some limit
    – hroptatyr
    Oct 11, 2013 at 10:28
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    guys, this is a useless debate on semantics. There are many ways to influence the order books, the rules for each of these orders can be different on each exchange, even ones as similar as NYSE and NASDAQ
    – CQM
    Oct 11, 2013 at 12:49
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Certain brokers allow for hidden orders to be placed in the market. It is as simple as that. Refer to Interactive Brokers as one example.

If you press on the " i " next to "Hidden" you will get the following description.

Hidden Orders

Some brokers may represent the hidden orders by an * next to the price level.

Sometimes large orders are place as these hidden orders to avoid large movements in the stock price (especially if the stock is illiquid as per your observation).

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    +1 That's very interesting. If there's some way you could add more info about this that would be great. Do you see this behavior with your own orders?
    – dcaswell
    Oct 6, 2013 at 21:10
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    Interactive Brokers allows these types of orders, so I would guess that other brokers would offer them as well. To get more information you can start by contacting Interactive Brokers. I have noticed that sometimes when looking at the depth of the market there is an " * " next to certain bid and ask prices. And I have leant that these tend to be the locations of hidden orders. I know that sometimes large orders are place as hidden orders to avoid large movements in the stock price (especially if the stock is not very liquid).
    – Victor
    Oct 6, 2013 at 21:23

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