Order Matching 101

Buy and Sell orders, they come by every minute of every day, from somewhere around the world. In the stock markets, commodity markets and, of course, round the clock in the crypto markets as well.

But how are these orders matched? How does this system work, and how does it apply itself in the crypto market space? This article will dive into this matter.

Basics

The matching engine is the core of a digital exchange. It matches up bids and asks to complete trades. The most commonly used matching priority is the ‘time price priority’. It basically means that bids and asks that were first put into the system get priority to be taken up (traded) if a similar match is found on the market for that price. The order that gets placed first will get a priority to be processed over a later order for the same market rate.

To give an example,

Person A wants two APPLES for 5 USD each. Places an order for: “APPLE 2 - 5 USD’’

5 minutes later

Person B wants one APPLE for 5 USD each. Places an order for: APPLE 1 – 5 USD’’

Seller C sells one APPLE for 5 USD each.

Person A will get one APPLE , and still has an open order for one: APPLE 1 – 5 USD’’.

Person B still wants one APPLE for 5 USD as well:’’ APPLE 1 – 5 USD’’.

Seller D sells two APPLES for 5 USD each.

Person A will get still get priority on the order and gets 1 APPLE . Order A fulfilled.

Person B gets his one APPLE for 5 USD. All orders fulfilled.

Quality of Crypto-Exchanges

The newest crypto exchanges have adapted in many ways to meet and accommodate supply and demand. One of those crypto exchanges using the latest complex matching systems is ,Bitstamp and it uses as system that is already being used by NASDAQ. The main improvements exchanges are making are the matching speeds and quick adjustability of the price traders can put in the order book or offer books. Streamlining these systems keeps the ‘flow’ in moving prices and matching orders close to each other in a healthy trading environment.

Why does this Matter?

This speedup in systems and matching orders has increased trading in crypto as well. When prices are moving more accurately and higher trading volumes are being achieved by these improved matching criteria algorithms, people tend to trade more often and this opens up more opportunities for traders to make a move. To put it in layman’s terms:

A factory had the capacity and speed to match 20 lids on 20 jars, but now by improving the algorithms, it found a way to efficiently match 100 lids with 100 jars and the machines in the factory keep up with the pace.

The latest cryptocurrency trading platforms have reached NASDAQ levels in 2020, like mentioned before with Bitstamp as one of them actually implementing the same software and matching systems. But there is always room for improvement in terms of useability, presentation and the availability to the larger crowds etc. etc.

Traders can set limits to buy at, limits to sell at, changes in % per hour to sell at X price, etc. This gives more and more opportunities for trades to happen any time of the day, even when you are not actually watching the order book in person yourself.

To have this available in the crypto space shows how mature the market became. Giving importance to trade gives more possibilities for people to enter the markets with ease.

At Mandala Exchange, the users experience a highly intuitive and user-friendly interface along with high trading liquidity powered by Binance Cloud. More details of order matching and exotic order types will be discussed in detail in the coming articles, and how they are handled at Mandala Exchange.