Pegged and Midpoint Orders
Pegged orders move automatically with the bid, ask or midpoint. Learn primary, market and midpoint pegs, how they save spread costs and the risks of chasing.
A pegged order is a limit order whose price is tied to a reference price, such as the best bid, the best ask or the midpoint between them, and moves automatically when that reference changes. Instead of constantly cancelling and replacing a limit order to stay near the market, you let the venue reprice it for you. Midpoint pegs, which sit exactly halfway between the bid and ask, are a popular way to trade without paying the full spread.
The main types of peg#
| Peg | Price follows | For a buy order this means |
|---|---|---|
| Primary peg | The same side of the quote | Your bid matches the best bid, optionally plus or minus an offset |
| Market peg | The opposite side | Your bid tracks the best ask; behaves more like an aggressive order |
| Midpoint peg | Halfway between bid and ask | Your bid sits at the midpoint |
Many venues also allow an offset (for example, best bid plus one cent) and a limit cap, the furthest price the peg is allowed to reach.
Midpoint pegs and the spread#
Midpoint orders usually do not display in the public order book. They are most common in dark pools and as hidden order types on exchanges, where they meet other midpoint orders or incoming orders willing to trade there. See Dark Pools.
Why traders use pegged orders#
- Staying competitive without constant replacing. A primary peg keeps you at the best bid as the market moves.
- Saving spread. Midpoint pegs split the spread with the other side.
- Lower information leakage. Non displayed midpoint orders do not reveal size.
- Execution algorithms use pegs as building blocks for working large orders patiently. See VWAP, TWAP and POV Execution.
The risks#
- Chasing. A peg follows the market. If the price runs away from you, a peg without a cap will follow it, possibly to prices you would not have chosen. Always set a limit cap.
- Adverse selection. Midpoint and passive orders tend to fill when the market is about to move through them. A midpoint buy that fills just before the price drops is a common pattern.
- Uncertain fills. Hidden midpoint orders may sit for a long time without a match.
- Quote instability. In fast markets, the reference price can flicker, causing frequent repricing and odd fills.
Who offers them#
Pegged and midpoint orders are standard on institutional and direct access platforms and are offered by most US stock exchanges and alternative trading systems. Many retail brokers do not expose them directly, though their order routing may use midpoint liquidity on your behalf. See Order Routing and Smart Order Routing and Best Execution and Execution Quality.
Peg orders compared with plain limits#
| Pegged order | Plain limit order | |
|---|---|---|
| Price | Moves with the reference | Fixed until you change it |
| Queue position | Can be lost when repricing | Kept while price unchanged |
| Effort | Automatic | Manual cancel and replace |
| Chasing risk | Yes, without a cap | No |
Frequently asked questions#
What is a midpoint peg order?#
A limit order whose price stays at the midpoint between the best bid and best ask, repricing automatically as the quote changes.
Do pegged orders guarantee a fill?#
No. They are limit orders, so they only fill if someone trades at their current price.
Why set a limit cap on a peg?#
To stop the order from following the market to prices worse than you are willing to accept.
Sources#
- Wikipedia, Order (exchange)
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Mentioned in
- Direct Market Access and Sponsored AccessOrders and Execution