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Smart Order Routing (SOR) Meaning

Smart Order Routing is an automated process used in trading to find the most efficient path for a trade across multiple liquidity sources. Instead of sending a buy order to just one exchange, an SOR algorithm scans Decentralized Exchanges (DEXs), Centralized Exchanges (CEXs), and automated market makers to find the best price with the lowest Slippage.The algorithm calculates the "Price Impact" of splitting an order.

For example, if you want to buy 1,000 ETH, the SOR might buy 400 on Uniswap, 300 on Curve, and 300 on a private market maker. This "Splitting" ensures that you don't exhaust the liquidity of a single pool and drive the price up against yourself.

In the DeFi world, aggregators like 1inch or Paraswap are the most prominent examples of SOR in action.Technically, SORs must account for Gas Costs as well as price. If a better price on one exchange is offset by a $50 higher gas fee, the router will choose the more expensive price that results in a higher net return for the user.

This multi-variable optimization is what makes SOR a critical tool for institutional traders and retail users alike, ensuring "Global Liquidity" is accessible from a single interface.

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