Smart Routing
At LYNX, you can add a stock to your trading platform in several ways. You can choose a specific exchange or the SMART routing. The difference between the two options is explained below.
SMART routing applies only to electronically available exchanges connected to it. Therefore, Börse Frankfurt (FWB), Börse Stuttgart (SWB), and Borsa Italiana (BVME) are excluded from SMART routing. A SMART order cannot be executed on any of these exchanges. To execute an order on these exchanges, you need to send your order as Directed. When you load a financial instrument with SMART routing on your platform, the quotes from these exchanges will be included, but the system cannot route your SMART order to any of these exchanges.
Explanation
When you request the prices of a particular stock, you can choose between two methods; namely SMART or directly on a specific exchange. Shares are often traded on multiple exchanges and it is up to you to choose which exchange you want to send your order to. If you choose the direct method, you can select a specific exchange to which your order will be sent. If you choose the SMART method, then your order will be executed on the exchange that is currently quoting the best price.
The advantage of SMART routing is that you will always get the best possible price from all the exchanges on which a particular stock is traded, but your order can also be executed outside regular trading hours on an alternative exchange.
Below you find the instructions on how to switch between the SMART- or Direct method within the order ticket.
SMART Routing Order in LYNX+
Suppose you want to buy Apple stock (AAPL) and your order ticket opens up on the right side of your screen.
As shown in the image on the right, the default setting is set to SMART.
Might you like to send the order direct to one of the possible exchanges, you can open up the menu and select the specific exchange.
SMART Routing Order in TWS
Within TWS it is also possible to send orders directly to a specific exchange instead of SMART. Once you opened the order ticket and selected the financial instrument you would like to buy, you see as shown below multiple options.
- Stock (SMART)
- Stock (Directed)
Once you selected Stock (Directed), there will open up a menu with all the available exchanges. You can select your preference and fulfill the order ticket to submit it.
Smart Routing Order in the LYNX Trading App
Orders submitted through the LYNX Trading App will be automatically SMART Routed to the available exchanges.
Only when searching an asset with its ISIN-Code, it is possible to select a specific exchange for your order.
FAQ
What is the difference between SMART and Directed when adding a stock?
When requesting the quotes for a specific security, you have the option to choose between Stocks (SMART) and Stocks (Directed). Stocks are often traded on multiple exchanges, and it is up to you to decide to which exchange you want to send your order. If you choose Stocks (Directed), you can select a specific exchange to which your order will be routed. If you choose Stocks (SMART), your order will be executed on the exchange that currently offers the best price.
What are the benefits/drawbacks of using SMART routing?
Using SMART routing can offer several advantages, including the potential for improved trade execution, access to a broader range of liquidity sources, increased price competition, and the possibility of obtaining the best possible price from all exchanges where a particular stock is traded.
Potential drawbacks of SMART routing are that your order may not participate in Euronext auctions and that your order can also be executed outside regular trading hours on an alternative exchange.
Can I control the routing of my orders?
You can freely choose between SMART routing and other available routing options. In both LYNX+ and TWS, you can customize your order routing preferences or select specific venues for execution.
How does SMART-routing handle non-marketable orders?
SMART-routing is designed to optimize execution quality by selecting the best available venue based on factors such as price, speed, and likelihood of execution. While this applies effectively to marketable orders, the behavior for non-marketable orders (e.g. limit orders placed outside the current bid/ask spread) differs significantly.
For non-marketable orders, IB uses what is referred to as SMART Multipurpose routing. As stated by Interactive Brokers:
“SMART Multipurpose (SMART-routing) – This is the basic smart-routing algorithm. It routes non-marketable orders (orders that add liquidity, such as buy/sell limit orders with a limit price below/above the current market) to the default exchange for the contract.”
Once such an order is routed to the default exchange, it typically remains there until it is either executed or cancelled. Unlike marketable orders, it is not dynamically rerouted to other exchanges if conditions change, unless the order becomes marketable or is modified by the user.
An important consideration is the handling of such orders when the default exchange closes. In this case, the order is temporarily deactivated and is only reactivated once the exchange reopens. During this period, even if the order becomes executable on another venue, it will not be filled, since it remains parked and inactive on the closed default exchange.
This behaviour can lead to missed execution opportunities on other available venues. Traders relying on SMART-routing for non-marketable orders should be aware that, in these cases, the routing logic is not continuously reassessed across markets during the life of the order.
For use cases requiring more dynamic reassessment across venues, it may be advisable to consider direct routing options or monitor orders actively during trading hours of the default exchange.