When we send an order to the market, most traders assume it simply gets executed on a single exchange. The reality is quite different: there’s a technology called Smart Routing that can make a significant difference in the final price we get. In this article we break down how it works, why it should matter to you, and what role it plays when choosing a broker.
What is Smart Routing?
Smart Routing is an intelligent order-routing system used by brokers like Interactive Brokers or Saxo Bank. Its main purpose is simple but powerful: when you send a limit order to the market, the system doesn’t route it to a single exchange, but searches and re-searches across multiple market venues, alternative exchanges, ECNs and Dark Pools to find the best possible price.
If it detects a better cross on another venue, it reroutes your order on the fly, in a matter of milliseconds, to try to get the best available execution.
How exactly does it work?
Smart Routing works continuously while your order is active in the market. These are the processes it carries out in real time:
- Constantly evaluates quotes and liquidity across all available market venues
- Can split your order into smaller fragments and send them to different execution centers simultaneously
- Reroutes on the fly if it detects that the market has changed and there’s a better price on another venue
- Aims to fill the entire order as soon as possible, always at the best available net price
This whole process happens in milliseconds. It’s completely transparent to the trader, who simply sees their order executed, usually at a price equal to or better than expected.
Which assets does Smart Routing work on?
US stocks
In the US market, Smart Routing can send orders to the main exchanges (NYSE, NASDAQ), alternative exchanges within the CBOE group (BZX, EDGX, BYX, EDGA), ARCA, National, IEX, Chicago, and also to internal crossing systems and Dark Pools. We’re talking about dozens of execution centers competing in real time to offer the best price.
Options
This is where Smart Routing adds especially relevant value. The system distributes orders across the main options exchanges: CBOE, NASDAQ Options, NYSE Arca Options, AMEX, and many other specialized venues. When we trade with platforms like ProRealTime, which connects to Interactive Brokers as the executing broker, we benefit directly from this technology.
European stocks
In Europe, Smart Routing also works by alternating between primary exchanges, CBOE Europe and MTFs (Multilateral Trading Facilities). In addition, all of this activity is regulated under MiFID rules, which require brokers to follow a best execution policy and to publish reports on it.
Futures: the exception
Futures don’t benefit from Smart Routing. They’re routed directly to the exchange where they trade (CME, Eurex, etc.) because they’re only traded on one specific venue.
The real advantages of Smart Routing
- Better execution price — the broker tracks the best BID and ASK in real time across all available venues and can split the order to capture the best prices on each
- Higher probability of execution — by searching across multiple markets, the chances of our order being filled increase considerably, especially in low- or mid-cap stocks and in illiquid option strikes
- Multi-leg spread optimization — the system crosses each leg of the spread wherever it finds the best cross, maximizing the net price of the entire combo
- No conflict of interest — Interactive Brokers doesn’t make money by selling your orders (Payment for Order Flow), which means the routing works for your benefit, not the broker’s
The Payment for Order Flow issue
This point deserves a special mention because it’s key to understanding why not all brokers are the same. Payment for Order Flow (PFOF) is the practice of selling clients’ order flow to intermediaries who, in exchange, pay the broker. This makes zero commissions possible, but the execution price the client receives can be worse.
Interactive Brokers’ official stance is that it doesn’t accept Payment for Order Flow on either stocks or options, and that it always prioritizes better prices over receiving payments for order flow. This matters because it aligns the broker’s incentives with the client’s: we pay a commission in exchange for the broker actively working to get us the best possible price.
The broker should work for us. That’s what we pay a commission for: to find the best possible price, wherever it is.
Drawbacks and cases where it can work against you
It’s not all upside. Although in the vast majority of trades Smart Routing benefits us (we estimate more than 95% of the time), there’s one specific scenario where it can work against us:
In the practical experience of trading for more than 5 years with this technology, these kinds of situations have happened only 3 or 4 times. The cumulative benefit of Smart Routing more than makes up for these exceptional cases, so disabling it is usually not advisable.
How to disable Smart Routing in ProRealTime
Although it’s not the recommended option, if you trade with ProRealTime you have the ability to disable Smart Routing. To do so:
- Go to Settings within ProRealTime
- Access Trading Settings
- At the very bottom you’ll find the option to disable Smart Routing
When you disable it, your orders will be executed only on the asset’s official market. As we’ve explained, this limits the chances of better execution, but eliminates the occasional case of stops triggered by crosses on alternative venues.
After-hours trading: an extra benefit
Something many traders don’t know: thanks to Smart Routing and specific execution centers for extended hours, it’s possible to trade US stocks outside official market hours. Instead of the usual hours (3:30 PM to 10:00 PM Spanish time), you can trade from 10:00 AM until 1:00 or 2:00 AM.
Why does this matter when choosing a broker?
More and more brokers are appearing with zero commissions or barely 1 euro per trade. The question we should ask ourselves is: how does that broker make money? If the answer includes selling order flow, the savings on commissions may be costing us more in the form of worse executions.
Some popular brokers use a single-execution-center architecture (mono-venue). This means your orders are only sent to one or two market venues, without any competitive search for the best price. The difference compared to a Smart Routing system that searches across dozens of venues is considerable.
What you should check with your broker
Does it have Smart Routing, or does it send orders to a single market?
Does it accept Payment for Order Flow, or does it prioritize best execution?
How many execution centers does it have access to?
Does it publish execution quality reports as required by MiFID?
Are the broker’s incentives aligned with yours?
European regulation: an important point
In Europe, MiFID rules regulate order execution and establish the obligation to seek best execution for the client. However, certain retail execution centers have been under scrutiny for possible ambiguities in how they fit with this regulation. Regulatory bodies such as ESMA have announced that they will clarify the multilateral framework of these execution centers, especially ahead of the ban on Payment for Order Flow in the European Union starting in 2026.
As investors, understanding the incentives behind the broker we use is essential to making informed decisions about where we deposit our capital and execute our trades.
Conclusion
Smart Routing is one of those technologies that work in the background but have a real impact on our results. Better execution price, higher probability that our orders get filled, and the peace of mind of knowing that the broker is working for our benefit and not its own. For those of us who trade options with multi-leg spreads, this advantage is even more significant.
It’s worth paying a fair commission to a broker that genuinely works to find us the best price, rather than opting for zero commissions with a business model that could be hurting us without us even knowing.
