What Is A Pegged Order In Trading?

August 03, 2015/0 Comments

There are different types of orders being placed in a market. One among the most widely placed type is a pegged order. The pegged order is something that has its price which is linked with any external references. An example of such a scenario is a buyer buying a stock from the market for a maximum bid that the market can actually impose on the stock at that situation. When the reference price gets altered, then the stock price also will get altered accordingly. This is an automatic process in terms of pegged orders. But this happens only up to certain level, as the price of external reference goes on increasing then the stock price will not get altered once it reached the cap price.

What Is A Pegged Order In Trading

Where the Pegged Order is usually Placed?

The pegged orders can be placed in the market up to certain extent in order to face the flow of transaction problems which was been created by the algorithmic trading. This makes sense that the pegged orders are placed when there is an increased flow of transaction where the prices will vary accordingly to the external reference price. For a simple algorithm like “make the market as good as a simple primary market”, which is a very commonly used algorithm, it can be easily implemented with the help of the pegged orders. But it must not be associated with any processing costs and the inbound transactions. The processing cost and inbound orders would be the case if the pegged orders are not available.

From the systematic perspective of the market place, it is very important to understand that even if the system load or simply the flow of transaction is reduced, then the features of the pegged orders will turn attractive for the end user as the usage of pegged orders will be rising dramatically. This causes the load to get increased sharply as a result and it also has the chances of going beyond the actual expectation what would have been there when the pegged orders are not available in the scenario. Thus it becomes important for controlling the resulting load from the pegged orders as the same manner as the inbound transactions that are normal and can be throttled. This is possible by scrubbing out the reference data which is in bound. This is possible by reducing the updates to certain level that can be accepted and by limiting the total number of pegged orders that are active.

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