Matching Orders
Candlefocus EditorAt the heart of order matching is the price-time priority rule. This mandate states that in a market where buyers and sellers are competing for the same security, orders are matched in the order they are received. Generally, the order first placed will be the one filled first – after taking into account the corresponding prices. The price-time priority rule has been an industry standard for decades and is designed to prevent investors from being unfairly disadvantaged by faster traders.
In today’s markets, matching orders is largely computer-driven. Advanced algorithms are used to identify and process orders as soon as they are entered and determine which trades should be filled. By instantly recognizing and processing orders, financial markets are more efficient and orders can be filled with little to no human oversight.
In addition to the advantages of speed, efficiency and fairness, automated order matching can also limit the cost of trading. When order matching is done manually with a broker, trading costs can rise due to extra time and effort required. Alternatively, when orders are automatically matched using computer programs, the entire process is much less labour-intensive and investors’ costs can be minimized.
In conclusion, matching orders is a critical part of many financial marketplaces. Through automation, order matching has become incredibly fast, efficient and cost-efficient, while still ensuring fairness across all trades. As technology continues to improve, order matching will continue to become an even more important part of the trading process.