Pro-Rata And Size-Pro-Rata Matching

The order book most people learn first is price-time priority (FIFO): at a given price, whoever posted their order first gets filled first, in full, before the next order in line gets anything. This rewards speed — being first in the queue is everything. Some markets, especially in interest-rate futures and a handful of options venues, use a different rule instead: pro-rata matching, where an incoming order that trades against a price level gets split across everyone resting at that price, in proportion to the size each one posted, regardless of who arrived first.

Think of it like splitting a pizza among people who each ordered different numbers of slices in advance — whoever ordered more slices gets a proportionally bigger share of whatever pizza actually arrives, and it doesn't matter who placed their order five minutes ago versus five seconds ago.

Worked example. At a price level, four resting orders total 1,000 contracts: Trader A has 400, Trader B has 300, Trader C has 200, Trader D has 100. A market order arrives for 100 contracts. Under pro-rata, each resting order gets filled in proportion to its share of the total: A gets $100 \times 400/1000 = 40$, B gets $100 \times 300/1000 = 30$, C gets $100 \times 200/1000 = 20$, D gets $100 \times 100/1000 = 10$. Notice this happens regardless of who was resting there first — Trader D might have posted their 100 contracts a full minute before Trader A's 400, and it makes no difference to the fill split.

Second example, the incentive it creates. Because fill size scales with posted size rather than arrival time, pro-rata books incentivize posting large orders to guarantee a meaningful fill, which is exactly the opposite incentive from a FIFO book (where posting large size just means a larger chunk sits exposed at the back of a long queue, with no speed advantage). In the example above, if Trader D wanted a bigger guaranteed fill, quoting 100 more contracts (200 total) at the same price would nearly double their share of any incoming order to roughly $100 \times 200/1100 \approx 18$ — a smaller proportional jump than it looks, since everyone else's share also gets diluted, but the direction of the incentive (post bigger to get more) is the defining feature of pro-rata markets.

What this means in practice

Trading strategies on pro-rata venues (notably CME interest-rate futures like Eurodollars/SOFR futures) look different from strategies on FIFO venues: instead of racing to be first in the queue, the game is around choosing how much size to post relative to the rest of the book, since posting more size directly buys a larger expected fill on every incoming order. Many pro-rata venues also blend in a small FIFO-priority allocation (e.g., the first order at a price gets guaranteed priority for a minimum size before the remainder is split pro-rata) specifically to avoid an unbounded arms race of ever-larger orders posted purely to game the split.

See Queue Position and Priority for how FIFO priority works and why it rewards speed instead, and The Economics Of Market Making for how the choice of matching algorithm changes a market maker's optimal quoting size.