Pegged, Midpoint-Peg And Discretionary Orders

A plain limit order names a fixed price and sits there until someone cancels or replaces it. If the market moves away, the order becomes stale — too aggressive, or too passive — and has to be manually re-priced. A pegged order solves this by naming a reference, not a price: "stay one tick behind the best bid," or "sit exactly at the midpoint," and let the exchange re-price it automatically every time the reference moves.

Primary peg. Tracks the same-side best price. A buy pegged to the bid sits at the best bid, always; when the bid moves from 50.00 to 50.01, the order silently reprices with it, no message needed from the trader.

Midpoint peg. Tracks the midpoint of the NBBO, $(bid + ask)/2$, and is common on dark venues. It typically isn't displayed at all — a resting order there is invisible until it trades.

Discretionary (pegged with slide). A displayed limit price plus a hidden "discretion" range: the order shows conservatively but will step up to a better, undisplayed price to complete a trade if a matching counter-order appears, then reverts.

A worked example

The book is 50.00 bid / 50.02 ask. A trader submits a buy pegged to the midpoint. It rests, invisibly, at $(50.00+50.02)/2 = 50.01$.

Two minutes later a large seller lifts the bid: the touch becomes 49.98 bid / 50.02 ask. The peg instantly recalculates to $(49.98+50.02)/2 = 50.00$ — the resting order silently drops a cent with no cancel-replace, no lost time, and (on most venues) no loss of priority relative to other pegged orders at the new price.

Compare a primary-peg buy on the same sequence: it started at 50.00 (equal to the best bid) and after the move re-prices to 49.98, tracking the bid down rather than the midpoint.

after: bid 49.98 / ask 50.02 49.98 bid 50.02 ask midpoint peg 50.00 primary peg tracks here: 49.98

Where it's used. Midpoint pegs are the default order type on dark pools, since resting at the midpoint captures half the spread with zero market impact and no signal to the lit market. Primary pegs are common for passive market-making quotes that need to stay at the touch without constant manual replacement. Discretionary orders let a trader post passively for queue priority while still being able to cross the spread opportunistically.