Pegged Order (Midpoint Peg)
The Formal Definition
An algorithmic limit order that dynamically tracks a designated market reference price—most commonly the exact midpoint between the National Best Bid and Offer (NBBO)—re-pricing continuously as the spread shifts without exposing resting limit quotes on public feeds.
Midpoint Peg Price = (National Best Bid + National Best Offer) / 2.0
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Midpoint pegged orders let you split the bid-ask spread down the middle. If a stock is quoted at $10.00 Bid and $10.10 Ask, a midpoint peg floats at $10.05. You avoid paying the market maker's spread toll, executing against incoming market orders with zero spread friction."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: Purchasing 1,000 shares of a wide-spread stock ($50.00 Bid / $50.20 Ask)
| Execution Metric | Smart-Routed Midpoint Pegged Order (IBKR Pro) | Standard Retail Market Order |
|---|---|---|
| Fee / Rate | $1.00 fee | $0.00 'free' |
| Spread / Buffer | Pegged silently to exact midpoint at $50.10 | Executed directly against the public Ask at $50.20 |
| Execution / Status | Matched against an incoming market sell order at $50.10 | Paid the full 20-cent retail spread markup |
| Total Cost / Result | Saved $100.00 compared to paying the lit Ask price | Lost $99.00 to market maker spread drag |
How Brokers Weaponize This Term
Retail brokers disable midpoint pegged orders to ensure retail order flow routes to wholesale internalizers, allowing the wholesaler to capture the midpoint spread instead of passing price improvement to the client.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Native support for Primary, Midpoint, and Market Pegged orders with custom offsets on major lit exchange venues.
Read Audit →Cole Flags / Avoids
PFOF Mobile Desks: Restricts execution to basic market and limit orders, preventing users from accessing midpoint liquidity.
View Trap Details →Frequently Asked Questions
What happens to a pegged order if the spread moves?
The order's execution price automatically updates in real time to match the new midpoint as the NBBO shifts.
Can you set a price cap on a midpoint pegged order?
Yes. You can attach a limit price ceiling to ensure your midpoint order stops buying if the market moves above your target price.