Peg orders can be classified as National Best Bid Offer (NBBO), which is the lowest price that the trader is willing to pay for script when selling the security and National Best Bid (NBB), and it is the highest price the investor is willing to pay for scrip when purchasing the security. The difference between NBBO and NBP is known as the spread.
The pegged orders are classified into different categories. The most common pegged orders are pegged to market order where the trader specifies an offset amount which he is willing to pay above the best national bid or below it, pegged to mid-point order where the order is executed somewhere at the mid- point, pegged reserve order combines the salient features of the pegged order and reserve order.
If a trader wants to buy 10,000 shares of company ABC but he is not willing to pay more than $30 per share. The NBB is currently standing at $29.80, while NBO is at $30.39. The investor places a peg order with a limit of $30, it will not show the market value, instead when the NBO price meets the trade price of $30, a buy order is placed.
Pros and cons
The peg orders can only be operated by an expert trader and it comes with a cost that cannot be ignored. If you are a conservative investor, stick to standard trading instruments.