Interview Session: Design a limit order book for trading systems
A Mock interview of a System design at Alien Technology
Interviewer: Hello, can you introduce yourself briefly?
Candidate: Sure, my name is Richard Hendricks, and I have 10 in System Architecture.
Interviewer: Great, let's start with the first question. Can you explain what is a limit order book in a trading system?
Candidate: A limit order book is a data structure that is used in trading systems to maintain a real-time record of pending buy and sell limit orders for an asset. It represents the supply and demand of a particular asset and allows traders to execute trades at a specific price, known as the limit price.
Interviewer: Okay, understood. Can you explain the process of executing a trade through a limit order book?
Candidate: Sure, let me explain. When a trader places a limit order, the order is added to the limit order book at the specified limit price. If there's a matching order, i.e., a buyer at the same price as a seller, or a seller at the same price as a buyer, a trade is executed, and both orders are removed from the limit order book. If there's no matching order, the limit order remains in the limit order book until it's either executed or canceled by the trader.
Interviewer: Can you explain the different types of orders that can be placed in a limit order book?
Candidate: Sure, there are two main types of orders that can be placed in a limit order book: limit orders and market orders. A limit order allows a trader to execute a trade at a specific price, while a market order allows a trader to execute a trade at the best available price. Market orders are matched against the limit orders in the limit order book, and if there's a matching limit order, the trade is executed at that price. If there's no matching limit order, the market order is executed at the current market price.