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 means of clever design and infrastructure. Our system doesn’t simply serve one section of customers; it applies equally throughout the platform, enabling everybody to faucet into scalable advantages that have been as soon as reserved for establishments. One key facet 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 sort of order is designed to strike a steadiness between velocity and value management: it seeks a quick execution whereas inserting a guardrail on how far the value can drift. For purchasers, 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 ingredient is our use of an omnibus buying and selling construction. Moderately than executing every particular person order individually, Betterment aggregates shopper trades permitting us to batch and route them extra effectively. This methodology helps us entry deeper liquidity and doubtlessly scale back total execution prices.

By means of 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 adversarial choice, and improve the potential for improved pricing. These execution advantages compound with scale and are embedded immediately 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 instant execution methods. Betterment’s managed execution framework—aggregating and scheduling trades all through the day—provides 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 instances 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 associate.

Market construction and the significance of spherical heaps

In fairness markets, commerce dimension performs a vital function 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 choices, and eligible for execution in institutional venues. Even mixed-lot orders that embody a minimum of one spherical lot (e.g., 105 shares) profit from this visibility, typically enhancing pricing for your complete commerce. In distinction, odd heaps—any order smaller than a spherical lot—are excluded from the NBBO and sometimes expertise decrease precedence, decreased transparency, and worse pricing. These orders dominate retail investor flows and sometimes end in 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 decreased visibility, exclusion from public quotes, and decrease precedence by execution venues. Trades of 99 shares have been significantly deprived in comparison with trades of 100, even when each have been positioned concurrently. Excessive-volume shares like Amazon (AMZN) illustrated this disparity clearly—Bartlett estimated that over 30% of odd-lot trades in AMZN may have obtained higher pricing if executed as spherical heaps.

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

Quantifying the influence: value discrepancies between lot sizes

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

For instance what that form of pricing distinction may imply in greenback phrases, think about VTI, a extremely liquid safety often traded by Betterment purchasers. 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 increased value.
• For somebody investing $5k/month, this implies roughly $30 a 12 months in increased prices. Over a 30-year interval, this might equate to greater than $3,400 in missed beneficial properties, assuming 8% yearly development.

The pricing examples offered on this paper are based mostly on internally derived simulations that replicate market conduct in line with the cited peer-reviewed analysis. These examples are meant for illustrative functions solely, aren’t meant to speak potential efficiency of any funding technique, and aren’t predictive of execution outcomes for any particular person commerce.

This pricing inefficiency compounds shortly and has important implications when managing shopper belongings at scale. Betterment’s execution engine is designed to assist scale back this value by structurally creating alternatives to combination orders into spherical heaps. According to our regulatory obligations, we goal to realize finest execution—a regulatory customary that requires looking for probably the most favorable phrases fairly accessible underneath prevailing market situations. This contains evaluating elements resembling value, velocity, chance of execution and settlement, and total value.

Betterment doesn’t delay trades to type spherical heaps, but it surely makes use of a system of time-based commerce home windows and an omnibus aggregation technique to opportunistically cross the round-lot threshold when shopper order stream naturally aligns. This permits us to systematically entry the extra favorable pricing situations sometimes related to round-lot trades—doubtlessly decreasing value and enhancing execution outcomes for purchasers.

Whereas our mannequin is designed to enhance execution high quality within the combination, particular person commerce outcomes could fluctuate 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 purchasers to dangerous microstructure dynamics. Excessive-frequency merchants (HFTs), for instance, exploit real-time alerts 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 meant to serve an analogous 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 prone to appeal to aggressive pricing as a result of it alerts significant curiosity and is simpler for liquidity suppliers to match towards present provide. For instance, a number of purchasers 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 chance that your complete order can be accomplished promptly at a fascinating value.

Execution in apply: Betterment’s technique

At Betterment, trades are executed in home windows all through the day. Every window consolidates related trades—purchase or promote, similar ticker—right into a single order, executed by means of an omnibus construction. Trades are routed by means of Apex, our clearing and buying and selling associate, to venues providing a aggressive mixture of value, liquidity, and fill reliability, with round-lot alternatives prioritized. We work to realize finest execution in all trades routed by means 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—resembling at day-end—we are going to 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 shopper 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 function in how we try to optimize outcomes alongside our execution practices. When purchasers’ orders align, aggregation and scheduling improve the chance of a good consequence.

¹Betterment reserves the fitting to delay buying and selling underneath sure circumstances; extra details about our buying and selling practices and insurance policies is out there in our Kind 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 an everyday and rigorous overview of buying and selling outcomes, assessing execution high quality throughout market facilities utilizing key metrics resembling 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, think about this instance the place three purchasers submit small trades across the similar time. When routed individually, these odd-lot orders are uncovered to the identical disadvantages outlined earlier—resembling worse pricing attributable to exclusion from the NBBO. However when aggregated right into a single round-lot commerce, the order beneficial properties visibility and precedence, growing the chance of receiving higher pricing.

Illustrative functions solely. Costs proven don’t replicate precise shopper 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 prone to appeal to aggressive pricing from liquidity suppliers as a result of it’s simpler to match towards present provide and alerts significant demand.

This instance illustrates a core perception: retail traders are deprived when fragmented. However after they act collectively—by way of an automatic platform like Betterment—they achieve 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 accessible to people, however Betterment’s platform replicates lots of them algorithmically.

By aggregating trades to achieve spherical heaps, utilizing structured time-based execution, and accessing liquidity intelligently, Betterment clients could profit from pricing and execution high quality just like what’s sometimes related to institutional requirements. This parity is very highly effective in risky or illiquid situations, the place fragmented execution might 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 charge construction to ship significant benefits to particular person traders. Our mannequin doesn’t assure higher execution on each commerce, however within the combination, it enhances pricing, reduces slippage, and ranges the enjoying area.

Betterment believes that balancing immediacy and alternative is essential. Betterment could wait to combination trades to hunt improved execution, which we consider is a rational tradeoff. Betterment purchasers aren’t 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 purchasers take advantage of their cash.

References

1. Bartlett, R. P. III. (2021). Modernizing Odd Lot Buying and selling. Columbia Enterprise Regulation Evaluation.
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 Faculty of Enterprise. College analysis on market microstructure and equity.
5. Australian Centre for Monetary Analysis (ACFR). Market design and fairness construction research.