Order Internalisation

Order internalisation is when a broker fills a client order from its own book instead of passing it to an external liquidity provider. Opposing client orders can be matched against each other, and any leftover net position is either retained by the firm or hedged in the wider market. Internalising can allow faster fills and tighter pricing because no external venue is involved, and it saves the broker external transaction costs. It also means the firm may end up on the other side of the client's trade, creating a conflict of interest that regulators expect to be disclosed and managed. Whether, when and how a broker internalises flow is normally described in its execution policy and account documentation.