Monday, June 17, 2024

Smart Order Routing (SOR)

Smart Order Routing (SOR) is an automated process in online trading that follows a set of rules for finding and evaluating trading liquidity.

The goal of SOR is to find the best way to execute a trade.

The concept is very simple

  • Intelligence refers to how to use your brain effectively to achieve the best results.
  • Commands are some type of instructions that expect action.
  • Route refers to setting a route to reach your final destination.

SOR is an automated process for processing orders designed to obtain the best available prices across a range of different trading venues.

Forex brokers use Smart Order Routing (SOR) technology to source liquidity across multiple venues, giving clients the best chance of price improvement (no or positive slippage).

Smart order routing is performed by Smart Order Router.

They are systems that analyze the status of the site. and place your order in the best available way.

Smart Order Router relies on rules, configurations and algorithms defined by .

They solve the problem of fragmented liquidity by analyzing different quotes and placing orders based on the best available options.

Most major institutional investors and brokers use smart order routers to automatically find the best trading price as quickly as possible.

Each smart order router is set up for different needs.

Smart order routers are typically deployed as part of automated trading systems, although the level of automation involved varies from router to router.

Smart order routing is not algorithmic trading

The phrases “intelligent order routing” and “algorithmic trading” are often used interchangeably, but in fact they serve very different, though complementary, functions.

Smart order routing only considers where the order is and what the price is. Algorithms may have determined what , how , and when placed the order.

Algorithmic trading is a trading system that uses mathematical models to make trading decisions in financial markets. Strict rules built into the model attempt to determine the best time to place an order that will have the least impact on the asset price.

How to become a smart order router?

Smart starts with a clear investment and execution policy. Start by thinking about what you want to achieve. What are you promising your customers or investors?

ABC of order routing:

  • Access live market data from each venue or consolidated streams from commercial providers.
  • Basic software for identifying messages and directing them to the appropriate destination.
  • connects to the selected execution location. This process can be as simple as linking to one of the many virtual private networks available within the financial services world, or as challenging as maintaining dedicated lines to each desired location.

If you want to learn more foreign exchange trading knowledge, please click: Trading Education.

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