Home Technology Smart order routing in trading, what it is and how it works

Smart order routing in trading, what it is and how it works

by Thomas
smart order routing

I’m going to talk about something a little more complex, smart order routing in trading, what it is and how it works.

Technology moves very fast, Wall Street was once much less complex, I would say more human you remember the “boiler room”?, computers have upended the way you buy and sell a financial instrument.

Smart order routing is an automated system that allows you to analyze in real time, with a set of rules, the characteristics of a financial instrument. In detail, smart order routing allows you to examine:

  • Price
  • Available quantity of (shares,bonds,options,futures,Cfd)
  • Broker with best listing on the market


This automated process gives investors simultaneous access to trading venues. Trading venue is the place where you do the bargaining, if you prefer it is the place of trade and there is not one in the world but many.

There are regulated trading venues and others that are privately managed trading circuits (e.g. a fund, institutional) but which are not regulated. Do you remember the dark pools? Well, check again by my post published months ago.

Smart order routing in simple words helps to execute trades at the best price offered by the market, through the use of complex algorithms and sophisticated platforms.

There are many trading platforms that use this system, not least because over the years trading has grown exponentially, for some it is a regulatory requirement to ensure transparency about the products offered to customers.

As mentioned before, smart order working is based on sophisticated computer technology, technicians of different brokers continually update and improve this system, ensuring the customer the best executed. You will understand that not all prices of a financial instrument are the same, I’ll give you an example to understand how it works:

I want to buy 5000 Tesla shares, there are 2 brokers A and B

Broker A offers 5000 units at 999.70 USD and 5000 at 999.71

Broker B offers 5000 units at 999.69, 2000 at 999.68 USD and 3000 at 999.73

The result is very simple, the system will do a very fast scan and will ensure the best execution then 3000-2000 units of Tesla. The benefits for trader are the best filled price, less time and cost savings’s transaction.

Smart order routing is an ever-evolving system, those who benefit the most in the market are always the same (strong hands and technologically advanced operators), in the autumn I will talk about the phenomenon of high-frequency traders and how they operate in the financial markets.



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