Smart Order Router (SOR) technology

A Smart Order Router (SOR) is a technology used in the financial industry to optimize the execution of trades across different exchanges and liquidity pools. SORs are designed to help traders achieve the best possible price for their orders by dynamically routing them to the most appropriate venues based on a range of factors such as price, volume, and liquidity. SORs use complex algorithms to analyze market data and determine the optimal routing strategy for each order, taking into account various parameters such as the type of asset being traded, the size of the order, and the time sensitivity of the trade.

SORs typically work by connecting to multiple exchanges and liquidity providers, each of which has its own order book and liquidity pool. The SOR aggregates this data and uses it to identify the most advantageous market for a particular trade, taking into account factors such as the bid-ask spread, depth of liquidity, order size, available liquidity, price impact,... Once the optimal market is identified, the SOR sends the order to that market, while also monitoring the execution of the trade in real time and adjusting the routing strategy if necessary.

One of the key benefits of SOR technology is that it can help traders achieve better execution outcomes by minimizing the impact of market fragmentation. In today's global financial markets, there are often many different venues where the same asset can be traded, each with its own set of rules, fees, and trading conditions. This fragmentation can make it difficult for traders to achieve the best possible price for their orders, as they may have to navigate multiple markets and order books to find the most advantageous trade. SORs help to address this issue by providing traders with a single interface that aggregates liquidity across multiple venues, allowing them to execute trades more efficiently and at better prices.

In addition to improving execution outcomes, SORs can also help to reduce trading costs by optimizing the use of liquidity. By dynamically routing orders to the most appropriate markets, SORs can help to minimize the amount of liquidity that needs to be sourced from each venue, reducing the fees and costs associated with trading. This can be particularly beneficial for institutional traders, who often trade in large volumes and require access to deep liquidity pools to execute their trades.