Summary
Matching algorithms decide which orders get filled and in what order. Knowing the key differences is important and could affect how you structure a trading program. If the number of contracts on the executable bid is greater than the number of contracts at the first lowest offer, the unmatched quantity is matched against open resting orders bearing the oldest trade date. This is known as "first-in, first-out" (FIFO). Gold prices hit 25-year highs in early January. With its new electronic gold contract, the Chicago Board of Trade uses priority pro rata, not FIFO. With the "priority pro rata" algorithm, first in does not necessarily get priority; allocation is based on the size of the relative orders. With FIFO the challenge is to be first in line, but in a pro rata environment you have to ensure the order you put in is large enough to get what you want.
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Matching Best Electronic Markets
While many traders focus on whether they'll get the best fill, few really understand how trades are matched. Matching algorithms decide which orders get filled and in what order. Knowing the key differences is important and could affect how you structure a trading program.
Throughout the entire futures industry, futures firms offset positions based on price and time criteria. Without exception, executable buy orders are matche...See the full content of this document
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