Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Money a broker receives for routing customer orders to a particular market maker.
Why It Matters
Payment for order flow (PFOF) is a big reason 'commission-free' trading exists. Wholesale market makers pay brokers to send them retail orders, which they fill - often with small price improvement - and profit from the spread. Supporters say it lowers costs and improves prices; critics worry it gives brokers an incentive to route for payment rather than your best execution. Regulators require brokers to seek best execution and to disclose their routing and execution statistics, so you can check how your broker does.
Key Points
- Market makers pay brokers for retail orders
- Helps fund commission-free trading
- Debated; brokers must still seek best execution
Learn More
How Your Order Gets Filled
Get a complete explanation with examples, key takeaways, and a quiz to test your knowledge.
Related Terms
Common Questions
Money a broker receives for routing customer orders to a particular market maker. Payment for order flow (PFOF) is a big reason 'commission-free' trading exists. Wholesale market makers pay brokers to send them retail orders, which they fill - often with small price improvement - and profit from the spread.
Payment for order flow (PFOF) is a big reason 'commission-free' trading exists. Wholesale market makers pay brokers to send them retail orders, which they fill - often with small price improvement - and profit from the spread. Supporters say it lowers costs and improves prices; critics worry it gives brokers an incentive to route for payment rather than your best execution. Regulators require brokers to seek best execution and to disclose their routing and execution statistics, so you can check how your broker does.
Market makers pay brokers for retail orders
Helps fund commission-free trading
Debated; brokers must still seek best execution