Frederick Potter 
The great interest in advanced trading technologies has emerged in Colombia in the last three years. With the ever-increasing competitiveness in the financial markets and the digital connectivity of the markets, both the institutions and the individual traders are partaking in smarter means of carrying out transactions. This need has seen adoption of tools that optimize trading decisions, albeit gradually and one of the very prominent ones has been smart order routing.
Smart order routing is a process that automatically searches among various sources of liquidity to determine the best possible price of a trade. It does not go through one channel of executing an order but considers multiple venues and routes the order. This is particularly crucial in the markets where price differences may arise in different platforms. Not all trading infrastructure is established in a country like Colombia and market fragmentation gives the market more opportunities to compete as efficient service enhances price and execution quality.
Huge financial institutions and brokers in Colombia have already started to include smart order routing in their systems to comply with increasingly faster and transparent demands. With increased clients demanding real time access to the competitive rates, such firms face the need to verify that they are performing well on a trade by trade basis. When it comes to foreign exchange this is doubly significant, as prices are apt to vary by the second. It may weigh very heavily in the favor (and indeed against) the conclusion of a transaction that the capability of agreeing upon the best rate is fast or slow, where large quantities are involved.
It is also this technology that is having its effects in the growing retail market. Single traders are increasingly participating in FX trades and most of them have turned to the use of platforms that offer smart order routing functionality. They might not be the direct witness of the sophisticated algorithms at work behind-the-scenes, but they experience lower pricing and efficiency in execution. This is especially important to users who are maintaining short-term positions, or responding to unexpected news in the market, as any slight delays can lead to huge implications.
The developments of smart order routing have been associated with the enhanced connectivity and access to data. The trading platforms available in Colombia have grown in the capacity to connect to the world liquidity providers exposing the traders to more quotes. Such wider exposure improves the level of competition among the providers and enables traders to obtain a more advantageous environment. It also stimulates more platforms in terms of innovation, improving their routing logic and making the user experience better through quicker trade confirmations and fewer rejections.
These technologies are getting widespread in Colombia as FX trading in Colombia has entered a new phase. Traders are no longer restricted by the local inefficiencies or older systems. Rather, they are able to compete on equal grounds in terms of fairness and accuracy as their counterparts in other more advanced markets. The availability of smart order routing is an indication of the fact that the infrastructure is being up to modern standards, and Colombia is keen on establishing a stronger trading infrastructure.
In the case of institutions, smart routing can give institutions information that they can utilize in strategy refinement and reporting of performance. To individual users, it brings about more confidence by providing superior results on every trade. With increased awareness, an increasing number of firms are likely to adopt the technology and invest in systems that facilitate its use. This will increase the reliability of Colombia’s FX environment over the long-term and ultimately lead to an increased number of participants and greater volumes.
This development is not only a technical advancement. It reflects a more profound change of attitude toward efficiency, fairness, and responsiveness in FX trading. Since Colombia is in the process of modernizing its financial infrastructure, one of the underrated contributions to that process is smart order routing.