Competing relative/pegged-to-primary orders

Discussion in 'Interactive Brokers' started by LM3886, Dec 29, 2021.

  1. LM3886


    I was reading the relative/pegged-to-primary order type offered by IB. If I understand it correctly, it generates an order that is better than NBBO by an offset and follows the change in NBBO. Imaging there are two users submitting this type of order to buy the same security, would they compete with each other by continuously bidding up the NBB? For example:

    NBBO is $10.10 x $10.20
    User A submits a relative order with offset $0.01, bidding at $10.11. Now NBBO is $10.11 x $10.20
    User B submits a relative order with offset $0.01, bidding at $10.12. Now NBBO is $10.12 x $10.20
    User A's order adjusts automatically to $10.13
    User B's order adjusts automatically to $10.14

    Obviously this can't happen in practice. What did I get wrong?
  2. Why it is obvious that this can't happen in practice?

    Be aware that the relative/pegged-to-primary order type does not adjust downwards last time I checked except if it is submitted to ISLAND.
    Last edited: Dec 29, 2021
    d08 likes this.
  3. qlai


    No, pegged orders are hidden orders and do not affect the NBBO.
    LM3886 likes this.
  4. LM3886


    Because otherwise the two users will bid up continuously and one of them will fill when the bid reaches NBO. The relative order becomes a market order effectively, which doesn't make sense.

    Interesting exception for ISLAND, although I couldn't find info about that in IB's documentation.
  5. LM3886


    Makes sense. I guess they have to be hidden for the pegged orders to work.
    qlai likes this.
  6. Do you have any reference confirming this for ISLAND? Also, do those order have higher commission at the exchange than market or limit orders?
  7. It's on IB. Look for it. I don't have time to find it.