# 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.

Source: https://learn.tradelabsai.com/orders/pegged-and-midpoint-orders/  
Track: Orders and Execution · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Pegged and Midpoint Orders", https://learn.tradelabsai.com/orders/pegged-and-midpoint-orders/

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

**Example: Trading at the midpoint**
A stock is quoted $30.00 bid and $30.04 ask, so the midpoint is $30.02. You place a midpoint peg buy order for 1,000 shares with a cap of $30.05.
If a seller using a midpoint order meets yours, you buy at $30.02, saving 2 cents a share, $20, compared with buying at the ask. If the quote moves to $30.02 by $30.06, your order reprices to $30.04 automatically.

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](https://learn.tradelabsai.com/market-structure/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](https://learn.tradelabsai.com/orders/vwap-twap-and-pov-execution/).

## The risks

1. **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.
2. **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.
3. **Uncertain fills.** Hidden midpoint orders may sit for a long time without a match.
4. **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](https://learn.tradelabsai.com/orders/order-routing/) and [Best Execution and Execution Quality](https://learn.tradelabsai.com/orders/best-execution/).

## 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)](https://en.wikipedia.org/wiki/Order_%28exchange%29)

## Continue learning

- Next lesson: [Post-Only and Reduce-Only Orders](https://learn.tradelabsai.com/orders/post-only-and-reduce-only-orders/)
- Previous lesson: [Hidden and Iceberg Orders](https://learn.tradelabsai.com/orders/hidden-and-iceberg-orders/)
- Related: [Hidden and Iceberg Orders](https://learn.tradelabsai.com/orders/hidden-and-iceberg-orders/): Iceberg orders show only part of a large order; hidden orders show none of it. Learn how they work, their priority trade off and how to spot icebergs in the book.
- Related: [Limit Orders](https://learn.tradelabsai.com/orders/limit-orders/): A limit order trades only at your price or better. Learn how buy and sell limits work, why they may not fill, queue priority and how to set a smart limit price.
- Related: [Bid-Ask Spread](https://learn.tradelabsai.com/markets/bid-ask-spread/): The bid-ask spread is the gap between the best price to buy and the best price to sell. Learn how to read it, what it costs you and how to pay less of it.
- Related: [Dark Pools](https://learn.tradelabsai.com/market-structure/dark-pools/): Dark pools are trading venues that do not display orders before trades happen. Learn why they exist, how they work, the concerns about them and how they affect you.
- Related: [Fill Probability and Queue Position](https://learn.tradelabsai.com/orders/queue-position/): Your place in the order queue decides whether a limit order fills. Learn how queues work, how to estimate fill probability and why fills can be a warning sign.
- Related: [Best Execution and Execution Quality](https://learn.tradelabsai.com/orders/best-execution/): Best execution is a broker's duty to get you the most favourable terms on orders. Learn what it covers, price improvement, routing reports and how to judge fills.