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Matching algorithms

Sumit Rawal answered on May 21, 2023 Popularity 6/10 Helpfulness 1/10

answer Matching algorithms

Matching algorithms

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The pseudocode uses the FIFO (First In First Out) matching algorithm. The order that comes in first at a certain price level gets matched first, and the last one gets matched last.

There are many matching algorithms. These algorithms are commonly used in futures trading. For example, a FIFO with LMM (Lead Market Maker) algorithm allocates a certain quantity to the LMM based on a predefined ratio ahead of the FIFO queue, which the LMM firm negotiates with the exchange for the privilege. See more matching algorithms on the CME website [24]. The matching algorithms are used in many other scenarios. A typical one is a dark pool [25].

Context handleOrder(OrderBook orderBook, OrderEvent orderEvent) {
    if (orderEvent.getSequenceId() != nextSequence) {
        return Error(OUT_OF_ORDER, nextSequence);
    }

    if (!validateOrder(symbol, price, quantity)) {
        return ERROR(INVALID_ORDER, orderEvent);
    }

    Order order = createOrderFromEvent(orderEvent);
    switch (msgType):
        case NEW:
            return handleNew(orderBook, order);
        case CANCEL:
            return handleCancel(orderBook, order);
        default:
            return ERROR(INVALID_MSG_TYPE, msgType);

}

Context handleNew(OrderBook orderBook, Order order) {
    if (BUY.equals(order.side)) {
        return match(orderBook.sellBook, order);
    } else {
        return match(orderBook.buyBook, order);
    }
}

Context handleCancel(OrderBook orderBook, Order order) {
    if (!orderBook.orderMap.contains(order.orderId)) {
        return ERROR(CANNOT_CANCEL_ALREADY_MATCHED, order);
    }
    removeOrder(order);
    setOrderStatus(order, CANCELED);
    return SUCCESS(CANCEL_SUCCESS, order);
}

Context match(OrderBook book, Order order) {
    Quantity leavesQuantity = order.quantity - order.matchedQuantity;
    Iterator<Order> limitIter = book.limitMap.get(order.price).orders;
    while (limitIter.hasNext() && leavesQuantity > 0) {
        Quantity matched = min(limitIter.next.quantity, order.quantity);
        order.matchedQuantity += matched;
        leavesQuantity = order.quantity - order.matchedQuantity;
        remove(limitIter.next);
        generateMatchedFill();
    }
    return SUCCESS(MATCH_SUCCESS, order);
}

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Contributed on May 21 2023

Sumit Rawal

0 Answers Avg Quality 2/10

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