I trade through Trade Station and TOS and they both have their Pros and Cons but each of them default to Smart Routing to execute orders. My question is: How "smart" is Smart Routing from the trader's side? And is there a better choice/method for the retail trader trading small lots of options and stocks? i.e would it be better that I choose the exchange instead of the platform? Thx for the help.
In general, no, they are not SMART. They mostly go to market makers in return for PFOF. We have an equity route called LSPT. It hit dark and lit exchanges to find liquidity and costs $0.0015/share. Our clients like it very much for taking liquidity as it is lower cost than the ECNs and works well. We also offer the typical ECNs with DMA. Our option SMART routes give a MM a chance to take the other side but without delay get posted to an exchange if not executable. We also offer option DMA. Bob
I'm going to disagree with Robert Morse here, and offer "They're frikken *genius*!!" And what evidence do I have?? Well, the wonderful sales pitches that each platform provides to sell their SmartRoute algo as The Bee's Knees. In relying upon the statements which the platforms (DMAs or not) make, one thing that is plain is that there are a number of ways to make a "Smart!" claim. I would off that I really don't care: as long as I don't have to get caught up in having to specify a specific exchange for each end of a combo for every 100+ trading day I have?? I'm good with that. In the times when I've taken a serious look at the various exchanges, I've seen markets that just seem to suck, and heavily. But by the time that gets assembled into a NBBO, "Whoa! Look at that!" If you want to claim a SmartRoute Special Sauce on that? "I'm good." Lastly, as far as IB goes, I would note (for SPX combos) 1) that I always seek MID prices. 2) I rarely don't get hit at MID. 3) I sometimes (5%??) get hit a nickel or a dime before MID -- and on a 50¢ spread? That's kinda good. (OMG. I just disagreed with Robert Morse. ) ((I crack me up. Bob -- thank you so much for all your contributions to ET...! ))
The vast majority of my option limit orders get rebates. SOR works for me. Do you set your order at the mid or walk to it?
For US options, it's a bit useless since all US option exchanges have to fill at NBBO (for Public Customer orders). Generally speaking, brokers route their orders based on the cost of trading (for them, not for their clients).
Unless doing really heavy volume, a trader should focus on building/getting a solid system that gives extra slippage allocation in the results. Smart routing etc. is good only for heavy hitters in the algo world. Care for animals........https://animalaidunlimited.org/
For taking liquidity in stocks, I have used a few smart routers (incl LSPD) and none can compare to IEX. I discussed this here: https://www.elitetrader.com/et/threads/lets-talk-routing.305390/ For options, the SMART route Bob mentions works very well. It's free to use (commission only, no fees) and you generally get your entire fill if the liquidity is posted.
%% More smart than stupid. But speaking of ''price improvement'' you can do better, entry anyway, mostly if you have the time. By the way i would NOT have a trading plan or system that depended on good executions..................................................................................And when my stop gets hit, i want out, smart out or just out LOLPartial disclosure ;I like IB calender,2.