By the name of the engine, one will indeed predict that it is something related to a heavy machine running all day long. However, a trade matching engine is unique, specially designed to serve an essential purpose. It has a deep connection with the electronic exchange. It refers to hardware and software components necessary to determine the result of trading securities. In modern times, trading is a highly successful field. With more people becoming part of this sector frequently, a machine is necessary to complete the matching. Here lies the significance of this fantastic engine.
Meaning of Trade Matching Engine
The role of a trade matching engine is prominent at times of offers or bids. For example, matching is essential if there is a bid on the same price. This machine will support the appropriate allocation of trades with the help of multiple algorithms.
After learning about the matching engine, it is essential to know about the matching trade. This engine has importance only in the case of matching trade. In such a type of trading, there will not be any offsetting of the credit risk. Furthermore, as the name suggests, it is all about offsetting trades where the counterparty goes for the equal bid. Except for the credit risks, all other risks related to the market or the interests will be subject to offset.
Working Process Of Trade Engines
A matching engine for trade operates on the concept of matching and offsetting. The connected algorithms are not very complicated. However, it follows the below-mentioned process to complete a trade successfully.
- Check out a sell order
- Match this sell order with a similar buy order
- It is crucial to verify whether the price of the sell order is equal to or more than the buy order
- The matching process stops when this condition does not qualify
- Finally, the engine goes for returning of the matched trades.
Time Price Priority is the most popular algorithm that these engines generally use. It ensures that the offers and bids entering the trade engine first will get priority over the subsequent bids. The process is relevant when the proposals or bids are equal. Market Order and Limit Order are the two types of orders that the matching engines use. Some run on FIX APIs, while others operate on a few exceptional APIs.
A trade matching engine is vital for the smooth operations of the stock market. Similarly, it also has enough relevance in the financial exchange and commodity sector. It will not be challenging to execute the final results for the parties placing bids of equal amounts. The whole process belongs to a centralized system. For fair settlement on the electronic platforms, such a machine is absolutely essential.
Depending on the market conditions, the organizers announce the final results. The transparency in the matching algorithms makes it one of the most sought-for systems for bidding purposes. Such an engine has rapid usage in case of the auction also. The order matching concept is a modern and advanced method for fair trading. It becomes fruitful when a productive machine comes as excellent support for it.