What Is ‘Order Internalization’ and How Does It Relate to Retail Crypto Brokerage?

Order internalization occurs when a broker-dealer executes a client's order internally, or with an affiliated party, instead of routing it to a public exchange. In retail crypto brokerage, this means the broker acts as the counterparty or routes the order to a related liquidity provider.

This practice is often done to capture the spread or a fee. While it can offer fast execution, it raises questions about best execution and potential conflicts of interest.