Term · Liquidity & Trading
Order Routing
In briefOrder routing is the process by which a securities order is forwarded through brokers and trading systems to an execution venue. The chosen route determines at which venue the order is executed and is subject to best-execution rules in the EU.
Definition
Order routing refers to the process by which a securities order is forwarded from the investor through brokers and trading systems to an execution venue. This determines on which exchange or trading system the order is executed. The choice of execution route is subject to best-execution requirements in the EU.
Why it matters for small caps
For thinly traded small and micro caps, the chosen execution route can noticeably determine the spread and the price achieved. Anyone trading such stocks should deliberately review the trading venue and execution quality.
Common misreadings
- It is assumed that every order is executed automatically at the best visible price, even though routing paths and the trading venue influence the outcome.
In the process
Frequently asked
Why is order routing relevant for small caps?
In thinly traded stocks, the trading venue and execution route can noticeably determine the spread and the price actually achieved.
What does order routing have to do with best execution?
Best execution obliges brokers to choose the execution route so as to achieve the best possible outcome for the client.
Can you influence the trading venue?
Often yes: many brokers allow the choice of exchange venue, which can improve the execution outcome in illiquid stocks.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.