A Smart Order Router (SOR) is an algorithmic system that continuously evaluates available trading venues—exchanges, dark pools, and internal liquidity pools—and routes portions of an order to venues that optimize execution quality, speed, and cost.
The SOR ingests real-time market data such as quotes, depth, and venue fees. It compares venue liquidity, latency, and price improvement to determine an allocation across venues. It may slice a large order into smaller child orders and send them to multiple venues, while monitoring fills and adjusting routing as conditions change.
SORs are used by brokers, asset managers, and market participants to execute orders across fragmented markets. They are a key part of electronic trading and are often embedded in trading platforms or order management systems. The goal is to balance price, speed, and the likelihood of getting a fill, while minimizing market impact.
Routing decisions depend on data feeds, venue rules, and configured policies; results are reported with execution quality metrics but can still vary with market conditions.
An institutional trader uses an SOR to split a large equity order across multiple venues to achieve a more favorable execution profile while reducing market impact.
Order routing · Execution venue · Dark pools · Latency · Algorithmic trading · Liquidity fragmentation