# Order Routing and Smart Order Routing

> Order routing decides which venue your order is sent to. Learn how brokers route orders, smart order routers, payment for order flow and how routing affects fills.

Source: https://learn.tradelabsai.com/orders/order-routing/  
Track: Orders and Execution · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Order Routing and Smart Order Routing", https://learn.tradelabsai.com/orders/order-routing/

When you click buy on a stock, your order does not go to "the stock market" as one place. In the United States, a stock can trade on more than a dozen exchanges and dozens of alternative venues. Order routing is the process of deciding where your order goes. The choice affects the price you get, how fast you get filled and sometimes how much your broker earns from your trade.

## Why routing exists

Modern markets are fragmented. The same stock trades on many exchanges, electronic communication networks (ECNs), dark pools and with wholesale market makers. Prices across these venues are linked, and US rules require trades to happen at the best displayed price, but liquidity and fees differ from venue to venue. See [Exchanges](https://learn.tradelabsai.com/market-structure/exchanges/), [ECNs](https://learn.tradelabsai.com/market-structure/ecns/) and [Dark Pools](https://learn.tradelabsai.com/market-structure/dark-pools/).

## How a retail order is typically routed

1. Your broker receives the order and checks it against your account.
2. The broker sends it to a venue: an exchange, an alternative trading system or a wholesale market maker.
3. The venue executes it, often within milliseconds, at or better than the national best bid or offer (NBBO).
4. You receive an execution report. See [Execution Reports and Trade Confirmations](https://learn.tradelabsai.com/orders/trade-confirmations/).

## Smart order routers

A smart order router (SOR) is software that splits and sends orders to the venues most likely to give the best result, considering:

| Factor | What the router weighs |
|---|---|
| Price | Which venues show the best bid or offer |
| Size | How much is available at each venue |
| Fees and rebates | Taker fees and maker rebates differ by venue |
| Fill probability | Historical chance of execution at each venue |
| Speed | Latency to each venue |
| Hidden liquidity | Dark pools and midpoint orders that may improve price |

**Example: Splitting an order**
You want to buy 2,000 shares. Venue A shows 800 at $40.02, Venue B shows 600 at $40.02 and a dark pool may hold midpoint liquidity at $40.015. A smart router might ping the dark pool first, then send simultaneous orders to A and B to collect the displayed shares before prices change, filling the order across three venues in a few milliseconds.

## Payment for order flow

Some US brokers route retail orders to wholesale market makers that pay the broker for that order flow. This **payment for order flow** (PFOF) helps fund commission free trading. Market makers profit from the spread on many small orders and often execute them at slightly better prices than the displayed quote, called price improvement. Critics argue it creates a conflict of interest and may not always produce the best outcome. US brokers must disclose their routing practices and payments in quarterly reports under SEC Rule 606. See [Best Execution and Execution Quality](https://learn.tradelabsai.com/orders/best-execution/).

## Direct routing

Active traders on direct access platforms can choose the venue themselves, for example sending an order directly to a specific exchange to add liquidity and earn a rebate, or to a particular ECN. This gives control but requires knowing each venue's rules and fees. See [Direct Market Access and Sponsored Access](https://learn.tradelabsai.com/orders/direct-market-access/).

## Routing in other markets

- **Futures:** each contract trades on one exchange, so routing mostly means getting to that exchange quickly.
- **Forex:** brokers route to banks and liquidity providers or act as the counterparty themselves.
- **Crypto:** prices differ across exchanges, and some platforms aggregate liquidity from several exchanges, functioning like a smart router.

## What routing means for you

- Ask how your broker routes orders and read its disclosure reports.
- Compare execution quality, not just commissions: price improvement and slippage matter.
- For larger or less liquid orders, limit orders protect you regardless of routing.

## Frequently asked questions

### What is smart order routing?

Software that automatically sends and splits orders across trading venues to find the best combination of price, size, speed and cost.

### What is payment for order flow?

Compensation some brokers receive from market makers for sending them customer orders. In the US it must be disclosed.

### Can I choose where my order is routed?

On many direct access platforms, yes. Most retail apps choose the route for you.

## Sources

- U.S. Securities and Exchange Commission, [Payment for order flow](https://www.investor.gov/introduction-investing/investing-basics/glossary/payment-order-flow)
- Wikipedia, [Smart order routing](https://en.wikipedia.org/wiki/Smart_order_routing)

## Continue learning

- Next lesson: [Direct Market Access and Sponsored Access](https://learn.tradelabsai.com/orders/direct-market-access/)
- Previous lesson: [Matching Engines](https://learn.tradelabsai.com/orders/matching-engines/)
- Related: [Matching Engines](https://learn.tradelabsai.com/orders/matching-engines/): A matching engine is the system that pairs buy and sell orders on an exchange. Learn price time priority, pro rata matching, auctions and why it matters to you.
- Related: [Best Execution and Execution Quality](https://learn.tradelabsai.com/orders/best-execution/): Best execution is a broker's duty to get you the most favourable terms on orders. Learn what it covers, price improvement, routing reports and how to judge fills.
- Related: [Exchanges](https://learn.tradelabsai.com/market-structure/exchanges/): Exchanges are regulated marketplaces where buyers and sellers trade. Learn what exchanges do, the major ones worldwide, how they make money and listing rules.
- Related: [Dark Pools](https://learn.tradelabsai.com/market-structure/dark-pools/): Dark pools are trading venues that do not display orders before trades happen. Learn why they exist, how they work, the concerns about them and how they affect you.
- Related: [ECNs](https://learn.tradelabsai.com/market-structure/ecns/): An ECN is an electronic system that matches buy and sell orders directly. Learn how ECNs work, their fees and rebates, ECN forex accounts and their role today.
- Related: [Direct Market Access and Sponsored Access](https://learn.tradelabsai.com/orders/direct-market-access/): Direct market access lets traders send orders straight to an exchange's order book through a broker's systems. Learn how DMA works, its benefits, costs and rules.
- Related: [Execution Reports and Trade Confirmations](https://learn.tradelabsai.com/orders/trade-confirmations/): After you trade, you receive order acknowledgments, execution reports and a trade confirmation. Learn what each one shows and how to use them to check your fills.