The order matching system is the core mechanism that enables trades to take place on a stock exchange. It works by pairing buy and sell orders for the same security based on price and time priority.

When an investor places a buy order through a broker or trading platform, it enters the exchange’s electronic order book. The same happens when a seller places a sell order. The order book lists all pending orders, ranked by price. For buy orders, the highest bid price gets priority, and for sell orders, the lowest ask price comes first.

The system automatically matches compatible orders. For example, if a buyer’s bid price equals or exceeds a seller’s ask price, the trade is executed. In most modern exchanges, this process happens in milliseconds.

If multiple orders exist at the same price, time priority applies, meaning the earliest order gets filled first. Once a match is made, the exchange confirms the trade to both parties, and the details are sent to the clearinghouse for settlement.

This automated process ensures efficiency, transparency, and fairness. It eliminates the need for manual negotiation and allows high volumes of trades to be processed quickly, even during volatile market conditions.

An order matching system is a core component of exchanges that pairs buy and sell orders for financial instruments like stocks, forex, or cryptocurrencies. When a trader places an order, the system records its price, quantity, and type (buy or sell). It then matches it with the best available opposite order based on price and time priority. For example, a buy order is matched with the lowest-priced sell order, and a sell order is matched with the highest-priced buy order. If no exact match exists, the order stays in the order book until matched or cancelled. Modern exchanges use electronic matching engines to process thousands of transactions per second, ensuring fast, fair, and efficient trade execution for all participants.