Smart order routing

Smart order routing is the technology brokers use to automatically decide which trading venue to send a client's order to, out of the many exchanges, electronic communication networks, dark pools, and other venues where a stock can trade. Rather than a person choosing where to send each order, software constantly scans the prices and available size across every accessible venue and routes the order to wherever it is likely to achieve the best result.

This system exists because Regulation NMS and the best execution obligation require brokers to seek the best available terms for a client, and no single venue always has the best price or the most available liquidity for every stock at every moment. Smart order routing can split a single large order across several venues simultaneously, send it first to the venue currently showing the best price and reroute the unfilled remainder elsewhere, or account for a venue's fees and rebates as part of deciding where a trade will actually produce the best net outcome for the client.

For an individual investor, smart order routing happens entirely behind the scenes, a retail order placed through a normal brokerage app never specifies a venue directly, the broker's routing system makes that decision in a fraction of a second based on current market conditions. The quality of a broker's smart order routing is one of the factors that affects how good an investor's actual execution price is relative to the quoted NBBO at the time the order was placed.