Screen Based Trading System

In a mandi, the price is whatever the buyer and the middleman settle on across a table. On a screen based trading system there is no table. A member types in a price and a quantity, the order joins a queue, and the exchange matches it against the other side automatically.

Nobody knows who is on the other end of the trade. Nobody can jump the queue. A trader in Rajkot and a trader in Mumbai see the same order book at the same moment and get the same treatment from it.

That is the whole point of the system, and it is why the workbook treats the move from the mandi to SBTS as the move from an inefficient price discovery mechanism to a transparent one.

Matching runs on price-time priority, applied in that order.

First, every order is ranked by price: the highest buy orders and the lowest sell orders sit at the front. Only where two orders carry the same price does the clock decide, and the one entered earlier wins.

Three consequences the workbook draws out, and the exam repeats:

• Raising your buy price moves you up the queue and raises the chance of a match.
• Lowering your buy limit pushes you down and delays execution.
• Reducing the quantity of a resting order does not cost you your place. Any other modification does.

Every accepted order gets an order number, and every match gets a trade number. Alongside the book, the system broadcasts last traded price, traded quantity, open, high, low, close, total traded value and total traded quantity in real time. Connectivity runs over desktops, laptops, tablets and mobile phones.

A guar seed order book, quoted in rupees per quintal, with a lot of 1 MT = 10 quintals:

Note the top of the buy side. The 4,048 order arrived first, at 10:12, and is still third in line — price beats time. Between the two 4,050 orders, the 10:14:03 one is ahead.

Now a trader sends a market order to buy 5 lots. It takes the 4 lots offered at 4,052 and then 1 lot at 4,055:

4 lots x 10 quintals x Rs 4,052  = Rs 1,62,080
1 lot  x 10 quintals x Rs 4,055  = Rs   40,550
Total paid                       = Rs 2,02,630

Had the whole 5 lots filled at the best ask of 4,052, the cost would have been Rs 2,02,600. The extra Rs 30 is impact cost — never invoiced, always paid.

Chapter 6 (Trading Mechanism), section 6.2.1. The reliably examined point is the modification rule: only a reduction in quantity leaves time priority intact. Expect also a straight "order matching is done on ____ basis" (price-time priority) and questions on whether raising or lowering a limit speeds execution.

• Price first, time second. An order entered at 9:01 at a worse price sits behind one entered at 2:30 at a better price.
• Reducing quantity keeps your place; reducing price does not. Candidates reverse this constantly.
• Highest buy and lowest sell match first — not the earliest buy and earliest sell.
• SBTS is the exchange platform; GTT and trailing stop loss are not. Those are broker-side facilities layered on top.
• Immediate-or-cancel and market orders are barred for algorithmic traders, even though the system supports them for everyone else.
• Anonymity is a feature of the exchange, not of the forward market it replaced — in a forward contract the two parties know each other by definition.