What is a Cryptocurrency Exchange Matching Engine?

Nowadays, cryptocurrency exchanges are run-of-the-mill. There seems to be a new exchange popping up every other day, seeking to compete with the high rollers. However, the problem with most of these exchanges is that there is no well-developed matching engine. An absence of one may result in long wait times for users and lags in the order book. The purpose of this post is to describe what constitutes a good matching engine and how it can contribute to the success of your cryptocurrency exchange. 

A cryptocurrency exchange matching engine is exactly what it sounds like. To keep it simple, all incoming and outgoing orders are processed through it, thereby serving as the exchange’s backbone. Many problems can be associated with a flawed matching engine, including long waiting times and lags in the order book for users. In this case, a malfunctioning system cannot handle the large volume of orders, causing a backlog. Users may have to wait hours or even days to receive their orders, which can be a highly frustrating trading experience.

However, an efficient and reliable matching engine can handle many orders equally fast and effectively. The exchange will therefore be able to keep up with market demand, and users won’t have to wait long for their orders to be processed.

Major Features

In order to develop an outstanding crypto matching engine, there are a few key features that must be included. First and foremost, it is essential that the exchange is able to process a high volume of orders per second, as the greater the number of orders that can be processed, the greater the number of users it is able to accommodate.

A second requirement would be for the engine to be able to handle a large number of users at the same time. As an exchange’s user base increases, processing orders will require more time and resources.

Thirdly, the engine should operate with low latency meaning that orders have to be processed instantly.

As a final consideration, the engine must be highly reliable. This is quite essential since any downtime can be catastrophic for an exchange. So, it is only a matter of time before users take their business elsewhere if an exchange is down.

How Are The Differences of Exchange Matching Engines From Other Engines Utilizing In Traditional Financial Markets Such as Forex markets or Stocks?

There is a significant difference regarding the number of orders needed to be processed because compared to traditional markets, cryptocurrency exchange engines need to deal with a massive amount of orders.

The reason is that the crypto exchange has a higher volume of trades because many more trades are being conducted. As an example, there are approximately 10 million trades executed each day on the largest exchange in the world – Binance.

On the other side, approximately 250,000 trades are processed every day by the New York Stock Exchange. Consequently, Binance’s matching engine will have to be able to handle 40 times more trades than the NYSE matching engine.

Latency is another difference. Speaking about the traditional markets, they use milliseconds to measure the latency. However, in the case of cryptocurrencies, it is measured in seconds since their prices are subject to rapid fluctuations. So, it is of paramount importance that exchanges are capable of processing orders almost instantly.

Taking too long to match an order may lead to the price already moving, which will make the trade unprofitable.

How Can a Matching Engine Benefit My Exchange?

Matching engines can be beneficial to your exchange in many ways. First of all, it increases your chance of attracting and retaining customers. By using a good matching engine, users will have the advantage of finding the best prices and executing their trades as quickly and efficiently as possible resulting that they will remain loyal to your exchange rather than switching to another.

Second, a solid matching system can be valuable for growing your company. It is likely that you will increase trading volume and revenue on your exchange by making it easier for users to trade on it. In turn, this leads to an increment in customer satisfaction and profits. More trades can be facilitated by a good matching engine, helping your business to flourish.

In the end, a good matching engine will provide better price discovery and execution, leading to a more liquid market. In this manner, all participants benefit from trading at the best price and minimize their trading costs. Furthermore, liquid markets are less likely to be subject to manipulation.

What Factors Affect The Performance of The Exchange Matching Engine?

A matching engine’s performance is primarily determined by how many orders it can handle per second. The engine’s performance enhances as the number of orders per second expands. A matching engine’s latency, reliability, and scalability can also impact its performance.

What Is An Alternative to Using a Matching Engine?

Matching engines cannot be avoided or neglected; the only alternative is not to use them. Users would then have to find alternative methods for matching their orders. There are a number of options available to them, including centralized exchanges and peer-to-peer systems, as an example.

However, alternatives such as these do not provide the same performance as matching engines since they may also be subject to different unprofitable trades and bugs.

It should be emphasized that matching engines are not common in all exchanges. For smaller exchanges, matching orders may be as simple as using order books. However, most exchanges do not utilize this method of matching orders because it is not regarded as efficient.

Matching engines play a critical role in any cryptocurrency exchange operation. By facilitating more trades and improving price discovery, they make the market more efficient, which results in a more liquid market that benefits all participants, so be sure your platform has a matching engine if you intend to launch a cryptocurrency exchange.

Conclusion

In any cryptocurrency exchange, matching engines play an important role, offering a wide array of benefits simultaneously. They facilitate more trades and provide better price discovery, thereby making the market more efficient. Therefore, developing more sophisticated and efficient matching engines will be crucial to cryptocurrency exchange in the future.

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