Smart Order Router. What is this?
- September 19, 2018

One of the key features of FinSafe’s trading platform is Smart Order Routing. A professional trading platform that traditional stock traders are used to must have a SOR feature to allow for an effective and profitable trading. Why a professional trader needs the SOR and literally refuse to work in an environment that is lacking this feature? Why all professional trading software have it?

Well, to get the answer, we need to understand how SOR is designed, how it functions and what it’s primary objective? SOR is an automated process of handling orders, aimed at taking the best available opportunity throughout a range of different trading venues. First SORs appeared in the US in the 1980s and since then they have developed into complex automated platforms. However, up until now, there was no exchange-agnostic SOR solution for crypto exchanges despite the fact that over 500 of those existed as of April 2018.

If you are skeptical about the use of SOR for the crypto market that is still relatively small in terms of institutionalized finance, please take the following fact into account. Even though there are some large exchanges that process over 10% of the daily market volumes at certain market days, the rest of the market liquidity is hugely fragmented, impacting entire blockchain industry and crypto exchange trading in particular.

Therefore, even by singling out large exchanges like Binance, BitFlyer, Huobi or Bitfinex, you will still be missing a large chunk of liquidity from other several hundred exchanges. SOR solves the fragmented liquidity problem by selecting the best available order from the participating crypto exchanges. Let us examine a hypothetical use case for SOR.

A client needs 10 bitcoins, so he places a market order (i.e. an order means to execute as quickly as possible at the present market price) via FinSafe’s SOR. In our hypothetical example, the market consists of three crypto exchanges and none of the three can offer 10 bitcoins at the best price.

Without SOR the client would have needed either to buy the bitcoins from an Exchange A or to monitor the current orders and place three separate orders: one for 5 BTC at Exchange A, an order for 3 BTC at Exchange B and one more order for 2 BTC at Exchange C.

Instead, the customer simply places a market order for 10 BTC and FinSafe’s SOR automatically splits and structures the orders in the best possible way automatically, so the order gets fulfilled 100%.

So let’s defragment the functionality of SOR even further:

1. A fully automated order execution process.
2. Routes the orders to that exchange, which has the best price.
3. Splits single order into several once in case the exchange doesn’t possess satisfactory currency volume.
4. Fast. It routes, splits and executes the orders in a split second.
5. SOR solves the fragmented liquidity issue.

Hope now you get a basic idea about Smart Order Routing functioning.

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