There has never been a higher need for crypto exchange services than at the moment. As a result, new startups and technologies are emerging to fill the gap. Many misconceptions exist about matching engines, which results in them being misunderstood. Some of the myths about crypto matching engines will be debunked in this article.
How Do Crypto Matching Engines Work?
A crypto matching engine is an algorithm for matching cryptocurrencies’ buy and sell orders. Matching engines reduce transaction costs, ensuring you get the best price for your coin.
Various financial markets use matching engines, including the stock, foreign exchange, and derivatives markets. Their speed and efficiency make it easy for them to handle many orders simultaneously.
Buy and sell orders are matched using cryptocurrency exchange matching engines. When a buyer places a purchase order for a crypto, the matching engine will search for sellers who are prepared to sell that asset for the same price.
As soon as a match is found, the trade will be executed, and coins will be swapped between the two parties. The order will remain in the order book when no match is found.
For example, let’s assume you wish to purchase one Bitcoin. You place a purchase order for one Bitcoin for $15,000. Then, the matching engine will search for a seller willing to sell one bitcoin for that price. If such a seller is found, the transaction will be executed, and the one Bitcoin will be sent to you. The order will remain in the order book if the matching engine does not find a seller.
Matching engines play a crucial role in crypto exchanges because they aid in executing trades at the lowest possible price as quickly as possible. A matching engine eliminates the need for a business to match orders manually, which would be time-consuming.
The type of matching engines used by crypto exchanges dramatically varies depending on the needs of the exchange. Some exchanges use a simple first-come, first-served algorithm for matching orders, while others use more sophisticated approaches.
An essential thing to understand is that the matching engine on a crypto exchange is meant to help you get the best price for your deal. Choosing an exchange with a good trading engine is key to buying or selling crypto coins at the best price.
What Are The Benefits of Matching Engines
Matching engines offer several advantages, including:
- Reduced transaction costs: You know you’re getting the best deal when using a reliable matching engine platform. Because you will be trading with lesser spreads (difference between the bid and ask prices), you will pay less in transaction fees.
- A faster performance: Crypto exchanges with good matching engines can process trades much quicker than exchanges without them. Due to the automated matching system, no human is needed to complete this task.
- Improved liquidity: Good trading engines improve liquidity by making it easier for buyers and sellers to locate one another. As a result, everyone will benefit from the ability to buy and sell cryptocurrencies at the best prices.
- Risk reduction: Matching engines can lower trade risks since orders are matched as soon as they are received. Because of this, you are not at risk of the price moving against you while you await the fulfillment of your order.
- More efficient market: With a good matching engine, trades can be executed rapidly and at the best possible price, which will help to increase market efficiency. Having actual underlying values reflected in asset prices benefits everyone in the market.
What Are The Challenges of Using a Matching Engine?
The use of a matching engine is not without challenges:
- A large amount of capital is required: To properly operate a matching engine, a great deal of capital is needed. The engine needs to be able to accommodate large volumes of orders. Insufficient capital may prevent an exchange’s matching engine from keeping up with demand, resulting in missed trading opportunities.
- Algorithm complexity: Some matching engines use quite complicated algorithms. The exchange owners may have difficulty understanding how the engine works, so making necessary modifications may be challenging.
- Technological dependence: The ability of the trading engine to match orders can be impacted by technical issues, if there are any.
Although crypto matching engines present challenges, they can still be an excellent tool for getting the best price for your trade and executing it as soon as possible.
The 3 Biggest Myths About Crypto Matching Engines
After having examined the nature of a trading engine, let us dispel some myths about them:
- Having a good matching engine requires a large exchange
This is not the case. Even though some of the largest exchanges may have the most sophisticated matching engines, this does not mean that little-known exchanges cannot offer reasonable prices and quick executions to compete with the big players. The matching engines of some of the smaller exchanges have a lot to offer in terms of quality.
- The matching engine is the same for all exchanges
This is also untrue. The matching engines that are used by some exchanges are the same (for instance, Binance and Kucoin), while many exchanges have different matching engines. Different businesses have different requirements, so they must choose the best tool to meet their needs.
- Successful exchanges rely only on good matching engines
Likewise, this is incorrect. A good trading engine does not solely determine the success of the exchange. Other factors must be considered, including liquidity, security, and customer support.
Conclusion
An exchange must have a reliable crypto matching engine since it helps buyers and sellers match up quickly and at the best price. Nevertheless, it is essential to remember that a matching engine is only one of many things that contribute to the success of an exchange.
