Order Matching Algorithm

An order matching algorithm is the core logic within an exchange that connects buy orders with sell orders to facilitate trades. It maintains the order book and ensures that trades are executed according to predefined rules, such as price-time priority.

The efficiency and fairness of this algorithm are critical for the proper functioning of the exchange. In centralized exchanges, this is typically a high-performance, proprietary system.

In decentralized exchanges, the matching is often done by automated market maker formulas that eliminate the need for a traditional order book. These algorithms must be robust against manipulation and capable of handling high throughput during market stress.

The design of the matching algorithm dictates how orders are filled and how the price moves. It is the fundamental technical component of any trading venue.