The matching engine of an exchange is the backbone of its trading operations, allowing it to match buy and sell orders swiftly and effectively. In this piece, we’ll look at how a typical matching engine works and examine some of the challenges that exchanges have in operating their engines.

Overview of Matching Engines

A matching engine is a piece of software that compares buy and sell orders for a certain securities or instrument. An order matching engine, trade matching engine, or simply a match engine is another name for a matching engine. These are utilized in a variety of markets, such as stock exchanges, foreign exchange markets, and cryptocurrency exchanges. A matching engine’s objective is to guarantee that trades are conducted easily and effectively, with little disturbance. This is accomplished by matching orders in the order book in accordance with the exchange regulations.

An order book is a list of all buy and sell orders placed on a trading platform. To execute a trade, the engine searches the book for a matching order and executes it if it finds one. If there are no matching orders, the transaction is canceled.

To select which orders to match, the engine utilizes a set of rules. These restrictions vary every exchange, but they often entail pricing and time priority.

A matching engine, for example, may utilize a pro-rata algorithm to assign orders depending on the proportion of the total order that each participant is ready to trade. Alternatively, an auction-based algorithm may be used, which allows players to make bids and offers at the same time and then utilizes a pricing algorithm to calculate the final price.

To match orders, matching engines may also utilize a First In, First Out (FIFO) algorithm. This implies that they will match the first order they receive with the first order received on the opposite side of the market. For example, if the bid-ask spread is $0.01 and a buyer puts a purchase order for $0.02, the engine will match that order with a seller prepared to sell at $0.01.

Matching engines are often built to handle a high volume of orders while reducing delays. They are also intended to be scalable, allowing them to manage an increasing amount of trading as the market expands. As a result, they are a crucial feature of every market where trading happens and play a critical role in ensuring that deals are conducted efficiently.

Matching Engine : Pluses

Matching engines are critical components of electronic trading systems because they allow market participants to trade with one another without the assistance of a human broker. They have several advantages, including:

1. Improved Efficiency: By automating the process of matching buy and sell orders, a matching engine can assist improve the efficiency of a financial market. This can assist minimize the time it takes to execute transactions as well as the expense of manual order matching.

2. Decreased Risk: By automating the order matching process, a matching engine can help decrease the risk of human mistake. This can lead to fewer errors and a lower likelihood of trades being made at the incorrect price.

3. Increased Liquidity: A matching engine can help to increase a financial market’s liquidity by making it simpler for buyers and sellers to discover each other and complete deals. This can result in more deals and a more efficient market overall.

4. Increased Openness: A matching engine may assist boost the transparency of a financial market by giving all players access to the same information regarding buy and sell orders. This can result in more accurate price discovery and a more efficient market overall.

5. Increased Accessibility: By allowing participants to join from anywhere in the globe, a matching engine can help make a financial market more accessible. This can result in a more global and efficient market as a whole.

As you can see, utilizing a matching engine may provide several advantages to both buyers and sellers in a financial market. Furthermore, by increasing transparency and accessibility for all players, a matching engine may help make the market more accessible and worldwide. As a result, implementing a matching engine can benefit all stakeholders in a financial market.

The Difficulties

However, various obstacles must be addressed in order for a matching engine to function well. These are some examples:

1. Ensure high performance: A matching engine must be able to process a high volume of orders while maintaining low latency. This necessitates the use of a high-performance, scalable system. The system should be able to manage sudden traffic surges without slowing or crashing. Furthermore, the system should be able to scale up fast as traffic volume grows.

2. Risk management : In order to handle the risks associated with human error and market volatility, a matching engine must have a strong risk management system in place. A system of this type must be sufficient to safeguard the engine from potential losses. Real-time monitoring of transactions and market circumstances, automatic warnings to advise traders of possible hazards, and the option to cancel or amend trades judged too hazardous are all critical components of a successful risk management system.

3. Maintaining transparency: In order to offer a fair playing field, all parties must have access to a matching engine. It should include an easy-to-use user interface so that everyone has access to the same information regarding buy and sell orders. This will assist to guarantee that everyone has an equal opportunity to succeed in the market.

4. Ensure accessibility: A matching engine must be available from anywhere in the globe so that all players may connect with one another. This needs a strong and dependable network infrastructure. Furthermore, the matching engine must be capable of supporting a large number of concurrent connections and transactions.

5. Meeting regulatory requirements: A matching engine must have an effective compliance management system in place to remain in compliance with applicable regulations. This system should be kept up to date with the most recent regulatory regulations in order for the engine to run smoothly and effectively. By assuring compliance with all relevant rules, a matching engine can help to avoid any interruptions or penalties.

Operating a matching engine may be a difficult and time-consuming operation. However, by recognizing the problems and taking efforts to solve them, it is feasible to develop a high-performance and scalable system that can offer all players with access to the same buy and sell order information.


In summary, a matching engine may be beneficial to sellers and buyers in a financial market in several ways. However, for a matched engine to continue operating, it must overcome many challenges. By being aware of the challenges and taking steps to solve them, it is possible to build an efficient matching engine.