A trading algorithm that pegs its “floating” execution price to the movements of a reference price. It enables traders to post passive orders, while automatically pegged and re-priced to the reference price (benchmark, such as the NBBO). Additionally, enhanced types could detect the price feed or order postings by human traders, while watching the order flow. When a new price level is established or displayed, the algorithm would automatically re-price.
During periods of illiquidity or low trading (pre-market trading and post- market trading), market makers and other algorithms attempt to detect the highest price levesl tapping to the pegging algorithm’s top, hitting the bid at such levels. If the market changes direction, market makers and algorithm stage a cover.
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