Order routing
Family V · Platforms
Not to be confused with ecn, stp, market maker broker.
Order routing is the process by which a broker or intermediary determines which venue or counterparty receives a client order for execution. It encompasses the selection logic, the transmission path, and the resulting execution quality. Routing decisions are shaped by price, speed, liquidity, and regulatory obligations, and they vary by broker, asset class, and jurisdiction.
How routing decisions are made
Routing logic typically evaluates available venues against criteria such as displayed price, historical fill rates, latency, and fee structures. Some brokers route to a single venue, while others use smart order routers (SORs) that split or sweep orders across multiple venues. The specific criteria and their weightings are proprietary and vary by firm.
Regulatory requirements, such as best execution obligations, influence routing but do not prescribe a single method. In some jurisdictions, brokers must disclose routing practices or provide execution quality reports; the required disclosures and their frequency vary by regulator.
Worked example: routing a market order
Assume a broker receives a market order to buy 1,000 shares of a stock. The smart order router evaluates three venues:
The router prioritised the lowest ask first, then moved to the next venue for the remaining quantity. The average price reflects the weighted cost of the fills.
Variation and disclosure
Routing practices differ by broker, asset class, and market structure. For example, equity routing in the United States often involves multiple exchanges and dark pools, while futures routing may go directly to a single exchange. In some jurisdictions, brokers must provide routing disclosures or execution quality statistics; the required content and format vary by regulator. Clients should review a broker's routing policy and execution reports to understand how orders are handled.
Often confused with
- ecn
- An electronic communications network (ECN) is an automated trading venue where buy and sell orders from multiple participants are matched directly, with prices determined by the interaction of those orders rather than by a single dealer's quote.
- stp
- STP (Straight Through Processing) is an execution model in which a broker routes client orders directly to liquidity providers without passing them through a dealing desk, so the broker's own capital is not the counterparty to the trade.
- market maker broker
- A market maker broker is a firm that quotes both buy and sell prices for a financial instrument and typically takes the opposite side of its clients' trades, earning from the spread and from client losses rather than from commission.