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 a traditional stock traders used to has to have a SOR feature to allow for a effective and profitable trading. Why professional need the SOR and literally refuse to work in the environment that doesn’t have 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 1980ies and since then they developed into a 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 sceptical about the use of SOR for 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 the 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 she places a market order (i.e. an order meant to execute as quickly as possible at the present market price) via FinSafe 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 her bitcoins from Exchange A or to monitor the current orders and place three separate of them: an order for 5 BTC from Exchange A, an order for 3 BTC from Exchange B and an order for 2 BTC from Exchange C.

Instead of all that, the customer simply places a market order for 10 BTC and our SOR automatically splits and structures the orders in the best possible way automatically.

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

  1. Fully automated process of order execution.
  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 does route, split and execute an order really fast.  
  5. Sor solves the fragmented liquidity issue.

Hope now you get the idea about Smart Order Routing.

 

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