Execution Priority Is Determined by Time
Up to this point, execution has involved at most one eligible order at each price.
At the end of the previous lesson, the book already contains an open ask A at $14 with a remaining quantity of 3 apples after partial execution.
The latest reported price B is $14
With only one order at this price, arrival time has not yet mattered.
That changes as soon as more than one order exists at the same price.
Stage 1. A Second Ask Arrives at the Same Price
Event: At a seller submits an order to sell 4 apples at $14 each.
The order is recorded in the asks ledger.Both asks have the same price. They differ only by arrival time.
Price alone is no longer sufficient to determine execution order, because more than one eligible order now exists at the same price. An additional rule is required to determine which order executes first.
When multiple eligible orders share the same price, execution proceeds in the order of arrival, with earlier orders executed first.
Stage 2. A Buy Order Arrives
Event: At a buyer submits an order to buy 3 apples at $14 each.
The order is recorded in the bids ledger.
The buy price overlaps with the asks priced at $14
There is sufficient total quantity on the sell side to execute the trade. However, more than one ask is eligible at the price $14
Arrival time must be used to resolve execution priority.
Stage 3. Execution Using Arrival Time
Execution occurs in the following order:
- C - the ask recorded at is executed for 3 apples and removed, because it is the earliest-arriving eligible ask at $14
- D - the bid recorded at is executed for 3 apples and removed, because the execution quantity is 3 apples - quantities for both ask and bid are fully match.
- E - the execution is written to the trade tape with the timestamp
The ask F recorded at is not executed and remains unchanged, because no buy quantity remains after the earlier execution.
Conclusion
When multiple orders exist at the same price, arrival time determines execution priority.
Price determines which orders are eligible to trade.
Arrival time determines which eligible order executes first.
Time priority is not a preference or a strategy.
It is a bookkeeping rule required to make execution unambiguous.