Sage Gold Inc.

Good Morning Gold Haven

My knowledge of iceberg orders is limited but I will put out my thoughts on it with the hopes that more knowledgeable posters can correct or add to them.

Iceberg orders are mainly used by Institions or individuals who have large positions they need to unload or acquire. Please note icebergs can be used on both the BID and ASK side of the market. In the case of the SGX yesterday the iceberg was on the ask or sell side so I will discuss icebergs in that context.

The definition of icebergs has been provided by Explorationguy so suffice to say they are a method for someone to split their order into small portions so not all of it is revealed at any given time. I think most of the orders if not all are executed by computer programs utilized by the trading houses.

So why do traders use icebergs? IMO there are many reasons for this and the most commonly given one is so that someone with a large position can unload it without causing a big movements in share price. However, an added benefit, I think, is that liquidity can be increased in many cases because anyone who is able to identify when an iceberg is in play can adjust their own trading strategy to take advantage of it. For example, they might see an iceberg on the ASK side and decide to pick up shares on the BID side without creating a big risk of putting upward pressure on the share price. Another reason I think is not too scare off players on the other side of the market. For example yesterday House 2 sold 265,000 (I think) shares at seven cents but only showed 25,000 as their ASK. So anyone looking at BID and ASK without access to the iceberg information would have seen only 25,000 sitting on the ASK side and thus would have been reasonable in thinking that might be a good time to pick up some more. Their thinking may have been different if House 2 had put their entire order in as a limit order and it was showing as a sell order for say 290,000 shares as one order. In that case some one would be reasonable in thinking "hmmmm what does that person know that I don't know?"

Sometimes however I feel it is done in order to just kill shareprice momentum. For example, retail buyers like us might consider buying at say 7 cents if we do not have the iceberg information and think there is a vey limited amount for sale at that price and our buying might cause the shareprice to appreciate. However, if an iceberg order is in play we might become frustrated and suspicious and therefore buying might dry up.

Sometimes an iceberg can cause retail buyers like us to have second thoughts about buying just for the simple fact that it creates doubt as to what they are up to. I will use my own personal thoughts from yesterday to make a point. I have had a buy order in at 6.5 cents for several days now hoping to add to my long position. Yesterday morning I toyed with the idea of moving it up to 7 cents. However, when I saw the iceberg order I decided to hold off. I did this for two reasons. First of all I felt that there was a good chance the iceberg might put some downward pressure on the shareprice and I might get filled at 6.5 cents. That didn't happen in this case. Secondly, given the relatively large size of the portion of the iceberg exposed I made a calculated guess that the iceberg was very large. In this case I guessed right because buying 265,000 shares through an iceberg for SGX is significantly bigger than the norm. IMO the size of the exposed portion of the iceberg is usually an indication of how much lies under the surface much like a real iceberg I guess. The reasoning behind this I think is the fact that whoever puts the iceberg in play must strike a balance between how much to expose against how many they want to sell. That is if they make the exposed portion too large then it will have the same effect as having a large limit order showing. But if they make it too small they will risk having it filled and thus losing their position in the trading que. This is because once the revealed portion is filled any trades for same price from other traders goes ahead of their iceberg. In other words a new time stamp is issued for the iceberg everytime the revealed portion gets filled.

Anyways that's my view on icebergs. Please remember any points I made were made in a general context and not specifically towards how the iceberg was executed yesterday by House 2 in selling their SGX shares. IMO the action yesterday was the result of someone involved in the recent acquisition lightening up on their position a little. Maybe for a reason as simple as diversifying their portfolio.

cheers

killick