Cancels, Amends and the State Machine
Real order flow is mostly cancels. A market maker adjusting quotes generates far more cancel and replace messages than trades, and the reported "cancel/replace storm" problem exists because handling that volume correctly is a different skill from matching.
An order is a state machine
Every order is in exactly one state, and only some transitions are legal.
- 1New. Received and validated, not yet in the book.
- 2Working. Resting in the book with some quantity available.
- 3Partially filled. Still working, with less quantity than it started with.
- 4Terminal. Filled, cancelled, or rejected. No further transition is possible.
Writing it out this way answers most of the questions the statement will ask. A cancel for a terminal order is not an error in the sense of a bug, it is a normal race: the cancel was in flight while the fill happened. A real venue answers it with a rejection saying "too late to cancel", and an assessment problem will tell you whether to no-op or to report. What you must not do is let it resurrect a filled order, which is what happens when cancel is implemented as an unconditional removal from the index without checking state.
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