Quick definition An order that adjusts its price to track the midpoint of the bid-ask spread. The order price moves automatically as the spread widens or narrows. What it is A midpoint peg order rests on the book at a price equal to the midpoint between the current best bid and best ask. As the bid-ask spread changes, the order reprices automatically. If the bid moves to 100.00 and the ask moves to 100.10, the midpoint peg order adjusts to 100.05. If the spread tightens to 100.02 and 100.04, the order adjusts to 100.03. Why it matters Midpoint peg orders improve execution for both sides. A buyer willing to pay the midpoint price avoids the bid-ask spread cost of a market order. A seller willing to accept the midpoint price achieves better prices than resting on the bid. Both parties benefit from the reduced spread cost. Practical example A trader wants to buy shares but does not want to pay the full ask price. The trader submits a midpoint peg buy order. If the current bid is 100.00 and the ask is 100.10, the order rests at 100.05. As the market moves and the spread changes, the order reprices automatically. If the spread tightens to 100.04 and 100.06, the order adjusts to 100.05. Execution at the midpoint If a seller submits a market order or a limit order that reaches the midpoint, the midpoint peg buy order executes. The execution occurs at the midpoint price, not at the ask price. This saves the buyer the spread cost. Midpoint peg versus Primary Peg A primary peg order adjusts to track the best bid (for sell orders) or the best ask (for buy orders). A midpoint peg order adjusts to track the midpoint. A primary peg is more likely to execute quickly. A midpoint peg is more likely to save on spread cost. Venue support Midpoint peg orders are supported on all US equity exchanges (Nasdaq, NYSE, Cboe). They are also available on many international exchanges. Repricing limitations Some venues have limits on how often a midpoint peg order can reprice. The order might not reprice on every quote change, especially if the spread only changes by a fraction of a cent. See also - Primary peg order - Market peg order - Microprice - National Best Bid and Offer (NBBO)
