Order Routing & Smart Order Routing

At its simplest, order routing is the process of directing a client's trade order from their platform to an execution venue. In a direct LP setup, every order goes to a single pre-configured liquidity provider. The broker establishes a FIX connection to the LP, and orders flow through this pipe. While straightforward, this approach offers no venue competition and leaves the client entirely dependent on one provider's pricing and fill behavior.

SOR algorithms evaluate multiple liquidity sources simultaneously for every incoming order. The SOR examines current bid/ask prices, available depth, recent fill quality, and latency for each connected venue. It then routes the order — or splits it across venues — to achieve the best available execution. SOR is the technology that makes multi-LP aggregation actionable: having 10 LPs connected means nothing without intelligent logic to choose between them.

Waterfall routing sends an order to the top-ranked LP first; if rejected, it cascades to the next. This is simple but adds latency with each rejection. Parallel (or spray) routing queries multiple LPs simultaneously and takes the best response. True SOR may combine both approaches: parallel evaluation for price discovery, then targeted routing based on the results. The routing strategy directly impacts both execution speed and fill quality.

Regulators require brokers to achieve "best execution" for clients. This isn't just about price — it encompasses speed, likelihood of execution, cost, and settlement. SOR is the primary technology for meeting best execution obligations in a multi-venue environment. Brokers must document their execution policy, including how their SOR makes routing decisions, and demonstrate that the policy produces objectively good outcomes.

A well-tuned SOR should produce measurable improvements in execution quality: tighter effective spreads than any single LP, lower rejection rates through fallback logic, reduced slippage through optimal venue selection, and faster fills through latency-aware routing. These metrics should be tracked, published, and compared over time. SOR quality is one of the most important differentiators between NDD brokers.