Payment for order flow

Common card · No. 482622

Payment for order flow (PFOF) is the compensation that a stockbroker receives from a market maker in exchange for the broker routing its clients' trades to that market maker. The market maker profits from the spread (the difference between purchase price and sale price) and rebates a portion of this profit to the routing broker as PFOF. Some of this benefit may be passed on to the retail customer as price improvement, often measured in fractions of a cent per share. PFOF was a key factor in the elimination of most brokerage commissions primarily in the United States and parts of Europe (see analysis below). PFOF is a controversial practice that has been called a "kickback" by its critics. It is criticized for culminating in conflict of interests and reducing market transparency. On the other hand, policymakers supportive of PFOF and several people in finance who have a favorable view of the practice have defended it for funding new investment apps, low-cost trading, and more efficient...

Read on Wikipedia