fbpixel Essential Concept 100: Market Fragmentation | IFT World
101 Concepts for the Level I Exam

Essential Concept 100: Market Fragmentation


Market fragmentation occurs when the same instrument is traded across multiple venues. Markets across the world have become increasingly fragmented. Market fragmentation increases the potential for price and liquidity discrepancies.

Electronic algorithmic trading techniques, such as liquidity aggregation and smart order routing, help traders manage the challenges and opportunities presented by fragmented markets.

  • Liquidity aggregation involves creating ‘super books’ that present liquidity across all markets for a given instrument. This helps traders identify the best opportunities.
  • Then smart order-routing algorithms are used to send orders to the markets that display the best-quoted prices and sizes.