Let's say I want to sell 100 shares of MomCorp at $10.
Bob also wants to sell 100 shares of MomCorp at $10.
If, instead of employing first come first serve you use a random selection then both of us have an incentive to tell the market that we actually want to sell more than 100 shares to increase the odds that we'll actually get to sell what we want. Various bad/unpredictable/unstable things start to happen in this sort of situation.
FIFO matching leads to a stable market.
Re:A High Frequency Trader's Apology, Pt 2
by sailfrog on Thursday April 26, 2012 @03:24PM
(#3895677)
Let's imagine you head over to the DMV over lunch to get your license renewed. Rather than have a line of people being served via FIFO they randomly pick who gets serviced next. Your lunch hour expires before you get your license renewed, meanwhile other customers barely have to wait thanks to the random selection. Rushing back to work you get pulled over ...
Silly example I know but FIFO matching is consistent with this idea of fairness. Without it it's possible that market participants could keep getting jumped by the random selection such that they never get an order execution.
I presume it was designed to ensure fairness, but is it any more 'fair' than random selection (true random, from a physical source that cannot be influenced) from all available matching bids.
Would anyone care to present an argument on how FIFO matching, after best price, is beneficial in the broader sense?