A matching engine is the central core of any crypto exchange providing an important tool so the exchange can match up buy and sell orders from users in real-time. In this blog article, we will take a look at how a typical crypto exchange matching engine works and what are the benefits that users can get.
What a Matching Engine Stands For and How Does It Work?
A matching engine, also known as a matching algorithm, is a system designed to match buyer and seller orders on a trading platform such as a crypto exchange. It’s the heart of the trading platform, responsible for executing trades and tracking orders.
A typical matching engine takes orders from buyers and sellers. Afterward, it matches them up with each other, commonly using some form of a priority queue to keep track of orders. Using a priority queue, the engine can rapidly match orders based on their price and time-stamp. The engine will also most commonly have an order book, which records all the outstanding orders that have been placed. When a new order comes in, the engine will attempt to match it with any existing orders in the book. Once a match is found, the engine will execute the trade, and both parties will be notified of the result. The engine will also keep track of any open orders that haven’t yet been matched in case a new order comes in that can be matched with them.
Matching engines use high-speed computer systems to process large volumes of trades efficiently and quickly. Matching engines can process hundreds or even thousands of trades per second, allowing them to keep pace with the fast trading activity in the market. This is significant for keeping up with a large amount of trading activity frequently occurring on cryptocurrency exchanges.
The Benefits
- The main benefit of using a matching engine is that it helps ensure rapid trade execution. With all outstanding orders being tracked, the engine can help prevent buying and selling orders that cancel each other out or where trades are not executed at the best possible price. This can save market participants time and money and help markets function smoothly.
- Another great benefit of having a matching engine is that it can help to provide more transparency in the market. By keeping track of all the outstanding orders, the engine can help market participants better understand what is happening in the market and how prices are likely to move. It can help diminish uncertainty and simplify the process of making informed decisions about the trades for market participants.
- Ultimately, a matching engine can also help improve a market’s liquidity. By making it easier for buyers and sellers to find each other and trade quickly, the engine can help ensure that someone is always willing to buy or sell at any given price. This can make it easier for market participants to get in and out of trades and can help to keep markets flowing smoothly.
Conclusion
Summarizing the above, matching engines are crucial to many financial markets and can provide several benefits to market participants. By ensuring that trades are executed quickly and efficiently, providing transparency in the market, and improving liquidity, the engine can help make markets function more smoothly and effectively and benefit market participants by saving time and money and reducing uncertainty.
