A pegged-to-market order is a sophisticated order execution strategy. This tactic is an algorithmic trading strategy that places limit orders which are adjusted based on market conditions.
The order’s limit is based on the best bid or ask in the market, depending on which side the trader is taking. Additionally, the pegged-to-market order may include an offset, indicating the price should be some amount above or below that price. Every time the reference bid or ask is changed, the pegged-to-market order will cancel its existing limit order and create a new one at the price derived from the new reference.
Pegged-to-market orders allow traders to reap benefits of market orders and limit orders simultaneously. Pegged-to-market orders are placed as limit orders meaning that upon execution they will be treated as maker orders, potentially receiving a lower fee structure in certain markets. Additionally, pegged-to-market orders always have a price near the spot price, increasing the expected speed of order execution.