Quick definition Price priority means orders at better prices execute before orders at worse prices. A buy at 100.50 executes before a buy at 100.49. This is the fundamental matching rule for order books. What it is Price priority is the most basic matching rule. When a market order arrives, it is matched against the opposite side of the book, starting with the best price. A market buy order is matched against the sell side, starting with the lowest ask. A market sell order is matched against the buy side, starting with the highest bid. Why it matters Price priority is universal and obvious. Without it, markets would not function. Traders expect that better prices execute first. Price priority also means the best bid and ask (top-of-book) are the most likely to execute. Price priority versus time priority Price priority determines which price level executes first. Time priority determines which order within a price level executes first. A market order at 100.00 first clears all orders at 100.51 and above (price priority), then within the orders at 100.51, it clears the oldest order first (time priority). Practical example The order book shows: - 100.51 ask: 100,000 shares (Order A) - 100.50 ask: 50,000 shares (Order B) - 100.49 ask: 75,000 shares (Order C) A market buy order for 150,000 shares arrives. Price priority means it fills from the lowest ask upward. Order B (100.50) fills 50,000. Order C (100.49) fills 75,000. Order A (100.51) fills 25,000. The order did not touch Order A because the lower-priced orders were available first. Enforcement Price priority is enforced by exchanges. All orders at the best price level are on equal footing (time priority applies within the level). If a venue violates price priority, it faces regulatory action. See also - Time Priority (FIFO) - Pro-Rata Allocation - Order Book - Top-of-Book
