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Its Grisha

Total Posts: 74
Joined: Nov 2019
Posted: 2020-08-03 15:59
From exchange API docs:
Pegged orders allow users to submit a limit price relative to the current market price. The limit price is set once when the order is submitted and does not change with the reference price. This order type is not intended for speculating on the far touch moving away after submission - we consider such behaviour abusive and monitor for it.

Can specify peg relative to far touch or near touch, but it does not adjust after order lands in book. Can someone explain the last sentence, how would this be used to speculate on the far touch moving away?

"Nothing is more dangerous to the adventurous spirit within a man than a secure future."


Total Posts: 474
Joined: Jan 2015
Posted: 2020-08-03 16:28
My guess would be the abusive scenario would be using it as a free option on new level formation.

Say the market's quoting at 100x101. You submit a buy order pegged to one level below the ask price. Say within the window a large order comes and swipes the ask, so the market's quoting at 100x102. Now the pegged order arrives and prices at 101. You've successfully grabbed first queue position on new level formation. But if the market doesn't move, the order just joins the back of the pre-existing queue at 100. Very low fill risk, you'll almost certainly be able to cancel.

The difference with vanilla limit orders is that speculating on new level formation requires taking real risk. If the market's quoting 100x101, and you're anticipating that it's about to move to 101x102, you better be right. Otherwise you pay to cross the spread and have nothing to show for it. In contrast with the pegged order, you can just spam it all day long without incurring any real risk. And even if you only get a hook once every thousand times, you'll still turn a profit. (Slight exaggeration: there may be OTR penalties, small risk you could get filled on the back queue, etc. But in general very small amortized costs for a lot of upside.)

Good questions outrank easy answers. -Paul Samuelson

Its Grisha

Total Posts: 74
Joined: Nov 2019
Posted: 2020-08-03 16:39
@ES Thank you for the great intuition as always, the theories I was coming up with were a lot more elaborate and unlikely! I think this must be it.

"Nothing is more dangerous to the adventurous spirit within a man than a secure future."


Total Posts: 128
Joined: May 2016
Posted: 2020-08-04 00:08
EspressoLover - thank you for sharing this. I have a few questions:

1. Do pegged orders get to the front of the queue because they have some kind of priority, or is the exchange engine just faster to realize the ask has moved up a tick than other traders? (I would assume the latter?) Edit: this assumes the exchange is handling the peg functionality for you versus something sitting client-side ingesting market data and sending updates to the exchange accordingly?

2. Peg orders seem like a good defense against quote matching strategies and a way to time the fill of your trade based on demand for liquidity versus price level. ("I want to provide liquidity in this situation versus hold the risk now." - sorry if that sounds stupid I'm new to this.) Is the behavior that the exchange considers manipulative the repeated cancellations / submissions using a peg order 1-2 ticks inside the market?


Total Posts: 8
Joined: Oct 2020
Posted: 2020-10-12 18:15
1. on nasdaq, they cannot gaurantee that the orders are reinserted in the order they were received.

2. on IEX, they DO gaurantee, and the pegged orders have much less adverse selection there and they do effectively prevent a large portion of latency arbitrage . See

No, i dont have any interest in IEX i learned this from experience trying to operating an hft MM strategy
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