Penny Algorithms are automated trade entry systems that will improve the posted quote of a security by a penny.
They’ve been mentioned on PrefBlog several times:
GAndreone:
In addition I find that order placed via my discount broker sometimes are overtaken by “trading robots”. That is, a buy order places at lets us say 1 cent above the highest order showing on level 2 quotes never makes the top of the list. A new smaller order appears at 1 cent above the order just placed. If you remove the order the smaller order also disappears.
Are those orders “automatized” or is there a trader watching all day long the stock? As soon as you buy the 2, 5 or 10 lots where the iceberg lies, it is almost immediately topped off with more lots. I sometimes play with it putting a bid one cent lower (sell order) or higher (buy order) to see it going almost immediately one cent in front of me. It will better me up to a certain point. I witdraw mine it goes back to where it was. I sometimes suspect it is one of you guys playing games.
I am currently engaged in a dispute regarding the very existence of penny algorithms for preferred shares (arising from an article on Pegged Orders that is now in preparation), and ask that those who notice one in operation for the next week or so either eMail me or tell me about it in the comments.