Thread by @alexxubyte

Here is a simplified design diagram that explains how a stock exchange such as Nasdaq or Newyork exchange works under the hood: #developers #systemdesign

Step 1: A client places an order via the broker’s web or mobile app.

Step 2: The broker sends the order to the exchange.1/6

Step 3: The exchange client gateway performs operations such as validation, rate limiting, authentication, normalization, etc., and sends the order to the order manager.

Step 4-5: The order manager performs risk checks based on rules set by the risk manager.2/6

Step 6: Once risk checks are passed, the order manager checks if there is enough money in the wallet.

Step 7 - 9: The order is sent to the matching engine. The matching engine sends back the execution result if a match is found. 3/6

Step 10 - 14: The execution result is passed all the way back to the client.

Step M1 - M3 (market data flow): Market data, including the candlestick chart and order book, are sent to the data service for consolidation. Brokers query the data service to get the market data. 4/6

Step R1 - R2 (reporting flow): The reporter composes all the necessary reporting fields (e.g. client_id, price, quantity, order_type, filled_quantity, remaining_quantity) and writes data to the database.5/6

Please notice that steps 1 to 14 are on the critical path (the trading flow), while the market data flow and reporting flow are not. They have different latency requirements. If you have any questions or I missed anything, please leave a comment.
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