An Order-by-Order Auction is a specific market mechanism where individual buy and sell orders are sequentially processed and matched against the existing order book, one at a time, to determine transaction prices. In crypto RFQ (Request for Quote) systems and certain institutional options trading scenarios, this method can be employed for illiquid assets or large block trades to ensure fair price discovery and minimize market impact by transparently executing each discrete order. It represents a structured alternative to continuous matching engines.
Mechanism
In this auction model, each incoming order is treated as a distinct event. The system rigorously attempts to match it against the most favorable counter-order(s) available on the opposing side of the order book at that precise moment. If a complete match is not immediately achievable, the unfulfilled portion of the order is either entered into the order book or canceled, depending on predefined system rules. This process occurs rapidly, with each order potentially initiating new price points or clearing multiple standing orders.
Methodology
Systems architects implementing order-by-order auctions design low-latency matching engines capable of processing individual order events with high precision and equitable treatment. The methodology incorporates robust price-time priority algorithms, clearly defined rules for partial fills and residual order handling, and transparent dissemination of execution prices. For institutional crypto options and RFQ, this approach provides a controlled execution environment for substantial positions, mitigating front-running risks and ensuring that each order systematically contributes to the overall price discovery process.
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