Cryptocurrency has become increasingly popular in recent years, and with that popularity comes a new set of challenges for traders. One of those challenges is the need for a cryptocurrency order matching engine. Keep reading to find out what that is and why your brokerage needs one!
What is It?
A crypto order matching engine is a tool that helps cryptocurrency buyers find sellers and vice versa. It does this by looking at all the orders placed on a given exchange and finding the best matches.
It’s impossible to overstate the significance of this process, which aids in the swift and profitable completion of trades at the most favorable terms for all parties.
To trade cryptocurrency effectively on an exchange, it is essential to understand how the order matching engine works.
At its core, an order matching engine is a type of software that finds compatibility between various buy and sell orders from users on an exchange.
For example, let’s pretend that two people want to trade Bitcoin on an exchange. One is looking to sell their Bitcoin for USD, while the other wants to buy it for EUR. The order matching engine would assess both of these orders and then find the best way to connect them. In this instance, it would probably match the two orders so that the person selling Bitcoin receives EUR from the individual buying Bitcoin.
The order matching engine looks at various trade conditions to fill orders, such as the price each user is okay with, how much Bitcoin each person wants to buy or sell, and the time limit set for the order. By considering all of these elements, the order matching engine can optimize buyer-seller matches and ensure that trades are completed swiftly and smoothly.
Without order matching engines, cryptocurrency exchanges would be unable to function properly. These engines match buyers and sellers together so that trades can be completed quickly and without issue.
How It Works
An order matching engine typically operates under two mechanisms: centralized and decentralized.
The centralized type of system matchmaking process matches buyers and sellers together. The decentralized market type is where buyers and sellers are connected by a group of computers (usually termed “nodes”).
The main distinctions between centralized and decentralized methods are:
- Control: A centralized authority controls the order matching engine in a centralized system. This entity can be an exchange, market maker, or investment firm. On the other hand, decentralized systems are not controlled by any one party.
- Speed: Centralized systems can typically match orders much faster than decentralized ones because only one entity needs to assess both sides of the trade.
- Security: Decentralized systems are often seen as more secure because there is no central point of control that can be hacked or taken down.
The type of mechanism an exchange uses usually relies on the exchange itself. Some use centralized systems, while others employ decentralized ones.
Some exchanges use a hybrid system in which some steps are centralized while others are decentralized. For instance, the matching of orders on an exchange might be handled by a central system, while a distributed network of computers might handle the confirmation and execution of trades.
How to Get a Matching Engine
Having complete control over the crypto matching process and making sure it is as efficient as possible is why many exchanges choose to build their own crypto matching engines. But there are some companies that focus solely on creating order matching engines for use in cryptocurrency trading platforms.
Companies that develop order matching systems typically understand the various factors needed to pair orders accurately. Having said that, they also have the experience necessary for developing and deploying such systems.
Suppose you’re looking to set up your own cryptocurrency exchange. In that case, it may be beneficial to research whether you want to develop your order matching engine in-house or use a company specializing in this feature. It is also important to note that exchanges can choose from various software platforms to run their order matching engines.
Some exchanges use open-source software, while others prefer closed or proprietary systems. The type of platform an exchange chooses is usually dependent on that exchange’s needs and wants.
One type of exchange may need a platform that can process a high volume of orders, while another type may choose a system that can swiftly pair up orders. You can find a platform that works for you, no matter your requirements.
In conclusion, a cryptocurrency exchange’s order matching engine is crucial and requires careful consideration of many parameters. The choice of platform, whether in-house development or outsourcing to a specialized firm, is ultimately determined by the requirements of the individual exchange. But you can find a platform that works for you, no matter what they are.
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