Order Routing Automation for Stock Brokerages

6 min read

It’s wise for stock brokers to diversify their range of executing venues to keep business safe, receive rebates for order flow, and offer fractional trading to their clients. If a software solution is implemented to automate order routing through careful configuration, it could greatly benefit brokerages who are trying to expand their client base and increase order flow. As a software vendor for brokers, we offer such an automation solution that barely has peers in the industry. 

But before diving into software specifics, let’s go through the basics of order flow from a broker’s perspective.

Order routing from a broker’s perspective

When a broker receives a buy or sell order, they route it to an executing destination for the order to be filled. The best practice for brokers is to have agreements with several executing destinations. Having routing options means that clients’ orders are filled quickly and at the best price.

Brokers consider the type of security, the size of the order, and the urgency of the trade when choosing a routing destination for an order. For example, dark pools and liquidity providers might fill large orders at better prices.

It’s also common for stock brokers to work with market makers who pay them for order flow. This payment is a kind of cashback, usually amounting to up to four cents per share price.

What brokers need for efficient order routing

Brokers need expertise and technology to route orders efficiently, benefiting their business and clients. One doesn’t work without the other: expertise alone cannot be efficient when order flow increases, while technology without expertise cannot be adequately configured to benefit a brokerage.

  1. Expertise. Exchanges, liquidity providers, dark pools, and other executing venues apply different rules when accepting orders for execution (order size, types of trades, etc.). Some work with fractional and notional orders, others don’t. Brokerage staff must be well-versed with all regulations, follow their revisions, and ensure that orders are filled according to them.
  2. Technology. Brokerages must have relevant integrations, infrastructure, and software solutions, such as an order routing wheel that we’ll discuss later, to automatically process all incoming orders from their clients and send them to the proper executing venues.

Regulatory aspects of order routing

Authorities heavily regulate stock brokerages to ensure that retail investors are not exploited. Regulations guarantee the following: 

  1. Best execution. According to SEC Rule 606 and MiFID II, stock brokers must provide the best possible execution of clients’ orders. Brokers must disclose how they consider order price, size, speed, and execution likelihood when choosing execution venues for the best results.
  2. Fair dealing. Stock brokers cannot engage in practices that disadvantage their clients, such as routing to venues with poor execution performance or financial incentives to brokers for order flow.
  3. Transparency. Retail investors are entitled to information about the venues to which their orders are routed.
  4. Recordkeeping. Stock brokers must keep records of all order routing activities.

Routing wheel for automating order routing

We’re sure that stock brokers diversify their pool of executing venues. Having several integrations is always about keeping the brokerage business secure, having a rebate or two for order flow here and there, and offering fractional trading to clients.

A software solution that automates order routing after thorough configuration could be a game changer for brokerages looking to grow their client base and order flow.

Our trading platform, DXtrade XT, offers stock brokerages a tool called Routing Wheel. The Routing Wheel allows brokers to establish routing profiles on the asset class level. If the wheel’s end execution destination rejects an order, it will automatically reroute it to the next destination. Brokers can update percentage routes and turn off individual destinations in real time based on a profile or asset level.

As DXtrade XT offers trading in fractional and notional quantities, the Routing Wheel comes as a great advantage of full control over order flow when combined with the platform’s fractional order management system.


Efficient order routing requires a combination of expertise and technology. A software solution that automates the process can greatly benefit brokerages by expanding their client base and increasing order flow.

The Routing Wheel in DXtrade XT allows brokers to establish routing profiles, fully control their order flow, and automate routing. With the right software solution and expertise, stock brokers can optimize order routing and provide their clients with the best possible service. We recently published an ebook about all the automation practices that stock brokers can use to run efficient and human-error-free operations.