Nicholas Pratt
Nicholas Pratt

Leveraging Smart Order Routing for Best Execution in FX

In the electronic trading FX world, every application has its role. Aggregation tools are responsible for presenting a consolidated view of the market's far-flung liquidity. And the algorithms are the mathematical means by which traders can automate their increasingly sophisticated execution strategies. In between these two processes sits the smart order router (SOR) and its job is to direct the algorithms to the various liquidity sources collected by the aggregator.

First Published: e-Forex Magazine 37 / Algorithmic FX Trading / October, 2009

Where the ‘smart’ comes into play is deciding which venue is the most appropriate. As with aggregation and algorithms, it is a simple enough concept but as the FX market becomes more disparate and execution strategies become more sophisticated, smart order routers have become, well, smarter. The relatively crude and linear approach of the basic SORs, simply sending orders to a list of venues and acting on whichever one responded first, has had to be updated.The new functionality that traders seek includes the ability to handle different order types such as passive versus aggressive trading, the ability to optimise connectivity to banks and other FX trading venues, the ability to detect and hunt down hidden liquidity, the ability to capture best execution capabilities by coupling with execution algorithms and the ability to handle superior order handling functionality.Importance of SORs Brokers are quickly realising the importance of SORs as components in the execution services they offer their...continued

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