Smart Order Routing
Automated logic that scans multiple trading venues to find the best price, fee, and fill quality for each order.
Smart Order Routing (SOR) is the technology that splits and routes orders across exchanges, ECNs, and dark pools in real time to achieve the best overall execution. It accounts for:
- Price — finding the best bid or offer across venues.
- Fee — maker/taker rates differ by exchange.
- Speed — latency to each venue.
- Fill probability — depth of book at each venue.
Broker-dealers owe a best-execution duty under FINRA Rule 5310 (and their agency obligation), while Reg NMS Rule 611 (the Order Protection Rule) separately bars trading through a better-priced protected quote on another venue — SOR is how brokers operationalize both. Retail traders generally cannot inspect how their broker's SOR behaves, making broker selection a meaningful execution-quality decision.
Related Terms
Dark Pool
A private, off-exchange trading venue where large institutional orders are matched anonymously without pre-trade transparency.
AdvancedExecution
The process of completing a trade — from order submission through matching and confirmation. Execution quality affects real-world returns.
BeginnerImplementation Shortfall
The total cost of executing a trade measured against the price when the decision was made — the gap between paper and realized performance.
AdvancedMaker-Taker Fees
A two-sided fee model where liquidity providers (makers) earn rebates and liquidity takers pay fees.
AdvancedMarket Order
An order to buy or sell immediately at the best available price. Guarantees execution but not the fill price.
BeginnerNBBO
The highest bid and lowest ask for a stock across all U.S. exchanges combined — the consolidated quote your broker must benchmark fills against.
IntermediateOrder Flow
The stream of incoming buy and sell orders hitting the market — analysis of order flow reveals who is aggressive and where price is likely headed next.
AdvancedPayment for Order Flow (PFOF)
Compensation a broker receives for routing customer orders to a wholesaler, who fills them internally and pays the broker for the flow.
IntermediatePrice Improvement
A fill at a better price than the prevailing NBBO — buying below the national ask or selling above the national bid.
IntermediateSlippage
The difference between the expected fill price and the actual fill price. Positive slippage benefits you; negative slippage costs you.
BeginnerTWAP Order
An execution algorithm that splits an order into equal slices released at even time intervals, targeting the time-weighted average price.
AdvancedVWAP Order
An execution algorithm that slices a large order across the session to track the volume-weighted average price, minimizing footprint.
Advanced