Smart Order Router (SOR)

A Smart Order Router (SOR) in the context of cryptocurrency trading is a technology used by exchanges and trading platforms to efficiently execute orders across multiple liquidity pools or exchanges. It automatically routes orders to the venue offering the best price at the time of execution, thereby optimizing trade execution and minimizing transaction costs for traders.

Example:

Imagine a trader wants to buy 1 Bitcoin (BTC) at the best possible price. Instead of manually checking multiple exchanges for the best price, they can use a platform with a Smart Order Router. The SOR will analyze prices across various exchanges in real-time and execute the order on the exchange offering the most favorable rate at that moment. This ensures the trader gets the best possible deal without the need for manual intervention.

Case:

During periods of high volatility or market imbalance, prices can fluctuate rapidly across different exchanges. In such scenarios, a Smart Order Router becomes crucial for traders to swiftly capitalize on price discrepancies and secure optimal trade executions. Without an SOR, traders might miss out on favorable opportunities or end up paying higher fees due to inefficient order routing.