A smart order router (SOR) is an automated process used in online trading that employs a set of rules to search for and evaluate trading liquidity. The goal of a SOR is to find the best way to execute a trade by leveraging opportunities across multiple trading venues using advanced algorithms.

SORs were initially used as a key technology in the equity market, but they are now a standard feature of most trading platforms across all asset classes. As electronic trading grew in popularity, SORs became a necessity, and even a regulatory requirement, to ensure that all banks and brokers provided clarity on how their products worked.

The increased number of trading venues has resulted in liquidity fragmentation, as assets are traded across multiple venues at different prices and in different amounts. Smart order routers address this fragmentation by analysing available options and placing orders based on the best available option.

A Smart Order Router (SOR) is a sophisticated algorithm used in trading to optimize the execution of orders by dynamically routing them to the best available market or exchange. SOR evaluates multiple factors such as price, liquidity, speed, and transaction costs to determine where an order should be placed. It helps traders achieve the best possible execution price while minimizing market impact.

By scanning various exchanges, dark pools, and liquidity providers, SOR ensures that orders are split and executed across different venues to capitalize on the most favorable conditions. This technology is particularly crucial in fragmented markets, where liquidity is spread across numerous trading platforms, allowing traders to efficiently manage large orders and reduce slippage.