Introduction

Ever wondered what the “Disclosed quantity” option is?  Most of us do not use it, but let’s understand what is it for?

Disclosed quantity is a feature to mask your order size.  If you want to buy 5000 shares of Infosys but choose to disclose only 1000, everybody else would see your order size as 1000.  Does that sound like tricking or deceiving?

Actually, it is more like protecting your self interest (explained below).

Why would anyone hide their order size?

This feature is designed for traders who operate in big position sizes. 

Let’s say that a High Net Worth Individual (HNI) wants to buy 5 lakh shares of Infosys at ₹1200. 

If he exposes his full order size to the public, everybody would know that the demand for Infy’s shares is going up. What do you think happens when the demand goes up? That’s right: the prices go up too. Looking at this sudden spike in demand, other traders would also want to get in the action before the big move happens. In this case, the surge in buyers moves the stock price to ₹1250. 

Is it good or bad for the HNI? Of course it is bad because now he has to buy shares ₹50 rupee higher (which translates to ₹2.5 Crore of loss).

So, you see, transparency is not always a good thing in the stock market as being transparent costed this trader  ₹2.5 Crore.  What would he do next time? Yeah, use Disclosed Quantity. Actually, there are a lot more sophisticated algos to do hide the order size so I doubt any HNI would be using this very rudimentary feature.  

The 10% rule

The Disclosed Quantity can not be smaller than 10% of the order size. So, if the order is for 1000 shares, the disclosed quantity can not be lower than 100. 

This restriction was put in place to have some reasonable representation of the order book but then there are so many better ways to mask the order size that all these restrictions are meaningless now. 

Should you be using this feature?

Unless you are trading in crores (i.e. serious money), there is no point in using it and if you’re, you would be better off using distributed algos. I think for a retail trader, filling this field out is a waste of time and effort. 

One more thing is now that you know that order sizes can be masked, be cautious while trading solely based on Level 2 data. Most of the time, it is misleading and sometimes even manipulated.

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