What is a smart order router?
A smart order router (SOR) is an automated process used in online trading, which follows a set of rules that look for and assess trading liquidity. The goal of an SOR is to find the best way of executing a trade, taking advantage of opportunities across a range of trading venues through advanced algorithms.
SORs were first used as a key technology in the equities market, but they are now an integral part of most trading platforms across all asset classes. SORs became a necessity as electronic trading grew in popularity, and even became a regulatory requirement to ensure that all banks and brokers were giving clarity on how their products work.
The increased number of trading venues has caused fragmentation of liquidity, as assets are traded across a number of venues at different prices and in different amounts. Smart order routers serve to tackle this fragmentation by analysing the different offers and placing orders based on the best available option.
