hard · Market Microstructure
A liquidity provider (LP) is deciding whether to join a queue at the Best Bid ($25.05) where 5,000 shares are already resting. The LP wants to buy 5,000 shares.
If the typical aggressor size is 4,000 shares, which matching engine provides a higher probability of an immediate partial fill for the LP's new order?
- The FIFO engine, because it rewards the LP for being a significant provider of liquidity at that price.
- The FIFO engine, provided the LP's order is larger than the orders already in the queue.
- Both engines provide an equal 50% probability of fill for the LP.
- The Pro-Rata engine, because the LP will receive a portion of every incoming sell order immediately.
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