Smart Order Routing (SOR)
Smart Order Routing (SOR) is an automated trading technology that optimizes order execution by analyzing and accessing liquidity across multiple trading venues in real-time. SORs make dynamic routing decisions based on factors including price, liquidity, transaction costs, and venue characteristics to achieve best execution for traders.
Core functionality of Smart Order Routing
Smart Order Routing systems serve as intelligent intermediaries between traders and fragmented markets. Their primary function is to analyze available trading opportunities across multiple venues and determine optimal execution paths. This process involves:
- Real-time market data analysis across venues
- Price-venue arbitrage detection
- Dynamic liquidity assessment
- Transaction cost analysis
- Latency-aware routing decisions
Next generation time-series database
QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Market fragmentation and SOR strategies
SORs help traders navigate market fragmentation by implementing sophisticated routing strategies:
Liquidity aggregation
SORs aggregate liquidity across:
- Traditional exchanges
- Alternative Trading Systems (ATS)
- Dark Pools
- Market Making venues
Price discovery optimization
The system continuously monitors and compares:
- Displayed quotes
- Hidden liquidity
- Implied prices
- Cross-market opportunities
Next generation time-series database
QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Performance considerations
Latency management
SORs must manage several critical timing factors:
- Tick-to-trade latency for market data processing
- Wire-to-wire latency for order transmission
- Network determinism for consistent performance
Best execution compliance
SORs play a crucial role in meeting regulatory requirements:
Next generation time-series database
QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Integration with trading infrastructure
Smart Order Routers typically integrate with other critical trading systems:
- Order Management Systems (OMS)
- Direct Market Access (DMA) infrastructure
- Market data feed handlers
- Pre-trade risk checks
Data requirements
SORs depend on high-quality market data inputs:
- Real-Time Market Data (RTMD)
- Market depth information
- Order book imbalance metrics
- Venue analytics
Next generation time-series database
QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Risk management and monitoring
Risk controls
SORs implement various risk management features:
- Order size limits
- Price collar checks
- Maximum order frequency
- Exposure monitoring
Performance monitoring
Key metrics tracked include:
- Fill rates
- Slippage
- Venue performance
- Routing efficiency
Next generation time-series database
QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Market impact considerations
Smart Order Routers must carefully manage:
- Market impact cost
- Information leakage
- Implementation shortfall
- Execution slippage
This requires sophisticated analysis of:
- Order size relative to market depth
- Timing of order placement
- Venue selection criteria
- Split order optimization