From the Floor to the Engine

It's October 1987 on the floor of the New York Stock Exchange. Hundreds of traders in colored jackets are packed shoulder to shoulder, waving paper tickets, screaming prices over each other.

At the center of each crowd sits a 'specialist'. This is one designated human who runs the order book for a specific stock by hand. People bring buy orders and sell orders to the specialist, who tries to match them up and write the prices down on a paper book.

On a busy day, that one human is juggling thousands of orders. On Black Monday in October 1987, the system buckles. Some stocks open hours late. Phones ring off the hook. Specialists are physically losing track of who wanted what.

Now jump to today. A modern exchange like Nasdaq runs on a system called INET, sitting on servers in a data center in New Jersey. It can process roughly a million orders per second. There are no shouts and no paper. Just code.

An exchange is the place where buyers and sellers of a security meet. The thing inside the exchange that pairs them up is now called a matching engine.