In trading, a pegged order is a type of order placed by an investor to a broker requesting that they buy or sell securities at a rate linked to an index – such as a national best bid and offer (NBBO) index.
A national or international index is a better indicator of the value of an asset than an exchange index because it accounts for bids and offers across many exchanges on which an asset is traded rather than just a single exchange.
There are a number of different types of pegged orders. The most common pegged orders are pegged-to-market orders (the investor specifies an offset amount which they are willing to pay above the best national bid or below the best national offer) and pegged-to-midpoint orders (the order is executed when the assets can be bought or sold at the midpoint between the best national bid and the best national offer). Pegged reserve orders combine the features of a pegged order with those of a reserve order.
Example: An investor wants to purchase shares in a specific stock at the best price being offered on any exchange in the country. Using a pegged-to-market order, the investor instructs their broker to buy the desired shares but only if the order can be executed at the best national offer plus an offset of 0.5%. The broker will only buy the shares if they can find an offer equal to the national best offer plus a maximum markup of 0.5%.