How are incoming orders and quotes executed in continuous trading?

How are incoming orders and quotes executed in continuous trading?

• A. First-come-first-served
• B. Random
• C. Size-based priority
• D. Price-time priority

Answer: (D)

In continuous trading, execution follows price-time priority. The trading venue uses a limit order book with bids and asks, so the best price on each side matters most: the highest bid and the lowest ask set the inside market. When a new order arrives, the system matches it against the opposite side starting at the best price. If there are multiple orders at that same price, the one entered earliest is filled first, so time influences who gets filled at that level. Market orders take liquidity immediately at the current best prices, still using the time priority within each price level. This approach ensures trades occur at the most favorable prices first and that, among orders at the same price, those that arrived earlier are given priority, which promotes fairness and liquidity. Other rules like first-come-first-served, random selection, or purely size-based priority don’t align with how continuous markets are designed to operate, because they would ignore price significance or fairness across participants.

In continuous trading, execution follows price-time priority. The trading venue uses a limit order book with bids and asks, so the best price on each side matters most: the highest bid and the lowest ask set the inside market. When a new order arrives, the system matches it against the opposite side starting at the best price. If there are multiple orders at that same price, the one entered earliest is filled first, so time influences who gets filled at that level. Market orders take liquidity immediately at the current best prices, still using the time priority within each price level. This approach ensures trades occur at the most favorable prices first and that, among orders at the same price, those that arrived earlier are given priority, which promotes fairness and liquidity.

Other rules like first-come-first-served, random selection, or purely size-based priority don’t align with how continuous markets are designed to operate, because they would ignore price significance or fairness across participants.