Betterment’s buying and selling execution methodology

Betterment already manages rebalancing and tax optimization at scale—however there’s one other layer of worth working behind the scenes: execution. This paper focuses on how Betterment improves commerce execution by way of clever design and infrastructure. Our system doesn’t simply serve one phase of customers; it applies equally throughout the platform, enabling everybody to faucet into scalable advantages that had been as soon as reserved for establishments. One key side is our use of marketable restrict orders—orders positioned close to or barely higher than the present market value to allow them to execute instantly. This kind of order is designed to strike a steadiness between pace and value management: it seeks a quick execution whereas putting a guardrail on how far the value can drift. For shoppers, this implies higher safety in periods of market volatility—serving to be certain that trades don’t fill at costs considerably worse than anticipated.

One other foundational factor is our use of an omnibus buying and selling construction. Quite than executing every particular person order individually, Betterment aggregates consumer trades permitting us to batch and route them extra effectively. This technique helps us entry deeper liquidity and doubtlessly scale back total execution prices.

By options like scheduled commerce home windows, omnibus aggregation, and a design that favors round-lot execution, Betterment helps decrease structural buying and selling disadvantages, scale back publicity to hostile choice, and improve the potential for improved pricing. These execution advantages compound with scale and are embedded straight into the buying and selling expertise. The result’s higher equity, effectivity, and cost-effectiveness for each investor on the platform.

The problem in retail execution

Retail buying and selling has developed considerably lately, fueled by technological innovation and elevated market accessibility. Nevertheless, key structural disadvantages persist for particular person traders, particularly on the subject of small, odd-lot orders and fast execution methods. Betterment’s managed execution framework—aggregating and scheduling trades all through the day—presents a robust and scalable various designed to scale back prices, mitigate execution danger, and higher align with the realities of market construction. Whereas trades are scheduled into structured home windows, they’re executed a number of occasions through the buying and selling day to steadiness timeliness with the chance for aggregations. Betterment doesn’t web opposing orders; every commerce is routed externally to our clearing companion.

Market construction and the significance of spherical heaps

In fairness markets, commerce dimension performs a essential position in figuring out execution high quality. A spherical lot—at present outlined as 100 shares for almost all of tickers—is the usual unit acknowledged by exchanges and market makers. These trades are included within the Nationwide Finest Bid and Provide (NBBO), prioritized in routing selections, and eligible for execution in institutional venues. Even mixed-lot orders that embody not less than one spherical lot (e.g., 105 shares) profit from this visibility, typically enhancing pricing for your entire commerce. In distinction, odd heaps—any order smaller than a spherical lot—are excluded from the NBBO and sometimes expertise decrease precedence, lowered transparency, and worse pricing. These orders dominate retail investor flows and sometimes lead to much less favorable execution.

Authorized scholar Robert P. Bartlett III analyzed greater than 3 billion U.S. fairness trades in his 2021 paper and located that odd-lot orders obtained roughly 10% much less value enchancment than spherical heaps. This is because of lowered visibility, exclusion from public quotes, and decrease precedence by execution venues. Trades of 99 shares had been significantly deprived in comparison with trades of 100, even when each had been positioned concurrently. Excessive-volume shares like Amazon (AMZN) illustrated this disparity clearly—Bartlett estimated that over 30% of odd-lot trades in AMZN might have obtained higher pricing if executed as spherical heaps.

Betterment’s managed buying and selling method is designed to assist mitigate these penalties by systematically aggregating consumer flows to achieve round-lot thresholds, growing the probability of extra favorable outcomes.

Quantifying the influence: value discrepancies between lot sizes

A core function of Betterment’s execution technique is aggregating consumer orders to cross the round-lot threshold wherever attainable. This isn’t only a desire; it’s a response to well-documented execution disadvantages that odd-lot orders face.

For example what that form of pricing distinction might imply in greenback phrases, contemplate VTI, a extremely liquid safety incessantly traded by Betterment shoppers. We chosen VTI as a result of it shares traits with AMZN—each are closely traded by retail traders, profit from excessive liquidity, and are broadly well-liked. As of Might 2025, VTI trades at roughly $280 per share. If an odd-lot commerce receives even simply 2 foundation factors worse pricing than a spherical lot, this interprets to a price penalty of roughly $0.14 per share for odd-lot executions.

• For a 15-share odd-lot commerce: this implies a $2.10 greater price.
• For somebody investing $5k/month, this implies roughly $30 a yr in greater prices. Over a 30-year interval, this might equate to greater than $3,400 in missed positive factors, assuming 8% yearly development.

The pricing examples offered on this paper are primarily based on internally derived simulations that mirror market conduct per the cited peer-reviewed analysis. These examples are supposed for illustrative functions solely, are usually not meant to speak potential efficiency of any funding technique, and are usually not predictive of execution outcomes for any particular person commerce.

This pricing inefficiency compounds rapidly and has vital implications when managing consumer belongings at scale. Betterment’s execution engine is designed to assist scale back this price by structurally creating alternatives to mixture orders into spherical heaps. Consistent with our regulatory obligations, we goal to attain finest execution—a regulatory commonplace that requires in search of probably the most favorable phrases fairly obtainable beneath prevailing market circumstances. This contains evaluating elements similar to value, pace, probability of execution and settlement, and total price.

Betterment doesn’t delay trades to kind spherical heaps, nevertheless it makes use of a system of time-based commerce home windows and an omnibus aggregation technique to opportunistically cross the round-lot threshold when consumer order stream naturally aligns. This enables us to systematically entry the extra favorable pricing circumstances sometimes related to round-lot trades—doubtlessly decreasing price and enhancing execution outcomes for shoppers.

Whereas our mannequin is designed to enhance execution high quality within the mixture, particular person commerce outcomes could range relying on market volatility, order dimension, and venue-specific elements.

Commerce home windows as a mechanism for higher execution

Most retail brokers execute trades repeatedly, instantly passing orders to the market. Whereas this seems quick and clear, it exposes shoppers to dangerous microstructure dynamics. Excessive-frequency merchants (HFTs), for instance, exploit real-time indicators to seize unfold worth, typically on the expense of slower retail flows.

Betterment mitigates this by batching trades into scheduled commerce home windows. These home windows function all through the day and performance equally to frequent name auctions—an idea studied by Budish, Cramton, and Shim (2015). Their analysis exhibits that batched execution reduces the arms race in buying and selling latency, promotes equity, and narrows spreads. Although Betterment doesn’t run formal batch auctions, our home windows are supposed to serve the same objective: decreasing predictability, concealing intent, and enhancing common execution.

This design additionally lowers market influence by consolidating demand. Liquidity suppliers can see bigger, extra common flows as an alternative of a loud, fragmented stream. A single bigger order is extra more likely to appeal to aggressive pricing as a result of it indicators significant curiosity and is less complicated for liquidity suppliers to match in opposition to present provide. For instance, a number of shoppers shopping for SPY over the identical commerce window are mixed into one order, decreasing slippage—the distinction between the anticipated value and the precise execution value—and enhancing fills, or the probability that your entire order will probably be accomplished promptly at a fascinating value.

Execution in observe: Betterment’s technique

At Betterment, trades are executed in home windows all through the day. Every window consolidates related trades—purchase or promote, identical ticker—right into a single order, executed by way of an omnibus construction. Trades are routed by way of Apex, our clearing and buying and selling companion, to venues providing a aggressive mixture of value, liquidity, and fill reliability, with round-lot alternatives prioritized. We work to attain finest execution in all trades routed by way of this course of.

This construction introduces flexibility with out sacrificing equity. Betterment doesn’t delay execution for the sake of making a spherical lot, however we design the system to permit aggregation when sensible. If immediacy is critical—similar to at day-end—we’ll execute no matter heaps can be found.¹ We additionally monitor managed accounts for rebalancing and tax-loss harvesting (TLH) alternatives. When Betterment’s buying and selling algorithm evaluates consumer accounts for tax loss harvesting and rebalancing alternatives, it typically prioritizes figuring out potential tax loss harvests forward of potential rebalancing alternatives. This exercise additionally performs a significant position in how we attempt to optimize outcomes alongside our execution practices. When shoppers’ orders align, aggregation and scheduling improve the probability of a positive consequence.

¹Betterment reserves the precise to delay buying and selling beneath sure circumstances; extra details about our buying and selling practices and insurance policies is obtainable in our Type ADV.

To help oversight of Betterment’s execution high quality, Betterment has established a proper Finest Execution Committee tasked with oversight of execution high quality. This committee performs a daily and rigorous evaluate of buying and selling outcomes, assessing execution high quality throughout market facilities utilizing key metrics similar to foundation level deviation from market value at placement (placement strike), routing conduct, peer comparisons, and arrival value evaluation. Evaluations are made throughout ticker, order dimension, and timeframes.

Aggregation in motion: a comparative situation

To additional illustrate how aggregation results in higher execution, contemplate this instance the place three shoppers submit small trades across the identical time. When routed individually, these odd-lot orders are uncovered to the identical disadvantages outlined earlier—similar to worse pricing as a consequence of exclusion from the NBBO. However when aggregated right into a single round-lot commerce, the order positive factors visibility and precedence, growing the probability of receiving higher pricing.

Illustrative functions solely. Costs proven don’t mirror precise consumer execution outcomes.

This instance reinforces the sooner level about execution high quality variations between odd-lot and round-lot trades—such because the estimated 2 foundation level drawback present in high-volume shares like VTI. A consolidated 100-share order, just like the one proven right here, is extra more likely to appeal to aggressive pricing from liquidity suppliers as a result of it’s simpler to match in opposition to present provide and indicators significant demand.

This instance illustrates a core perception: retail traders are deprived when fragmented. However once they act collectively—by way of an automatic platform like Betterment—they acquire entry to efficiencies usually reserved for big institutional merchants.

Delivering institutional advantages to retail traders

Betterment’s mannequin is designed to translate institutional market benefits right into a retail context. Institutional desks execute trades strategically—splitting orders, timing placements, and ready for liquidity. These methods aren’t normally obtainable to people, however Betterment’s platform replicates a lot of them algorithmically.

By aggregating trades to achieve spherical heaps, utilizing structured time-based execution, and accessing liquidity intelligently, Betterment prospects could profit from pricing and execution high quality much like what’s sometimes related to institutional requirements. This parity is particularly highly effective in unstable or illiquid circumstances, the place fragmented execution could be pricey.

Conclusion and client-centric outcomes

Managed buying and selling, as applied by Betterment, is a deliberate, research-driven technique to beat the inherent flaws in retail execution. We mix commerce scheduling, order aggregation, and a impartial price construction to ship significant benefits to particular person traders. Our mannequin doesn’t assure higher execution on each commerce, however within the mixture, it enhances pricing, reduces slippage, and ranges the enjoying area.

Betterment believes that balancing immediacy and alternative is vital. Betterment could wait to mixture trades to hunt improved execution, which we consider is a rational tradeoff. Betterment shoppers are usually not sacrificing management—they’re gaining effectivity. Over time, this method is designed to create small however constant enhancements in return, aligning with our core mission: serving to shoppers benefit from their cash.

References

1. Bartlett, R. P. III. (2021). Modernizing Odd Lot Buying and selling. Columbia Enterprise Legislation Overview.
2. Budish, E., Cramton, P., & Shim, J. (2015). The Excessive-Frequency Buying and selling Arms Race: Frequent Batch Auctions as a Market Design Response. Quarterly Journal of Economics.
3. American Financial Affiliation. Analysis and publications on fairness market construction and buying and selling practices.
4. NYU Stern College of Enterprise. School analysis on market microstructure and equity.
5. Australian Centre for Monetary Analysis (ACFR). Market design and fairness construction research.