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According to the SEC, payment for order flow is a method of transferring some of the trading profits from market making to the brokers routing the orders. PFOF has been criticized forcreating potentially unfair or opportunistic conditions at the expense of retail traders and investors.

People also ask

  • What is pay for order flow?

    • Payment For Order Flow. Payment for order flow is the compensation and benefit a brokerage firm receives for directing orders to different parties for trade execution.

  • What are order-flow payments and why are they bad?

    • Order-flow payments subsidize the commission-free trading that鈥檚 become the norm with U.S. retail brokers, but they are banned in markets like Canada and the U.K. Why? The concern is that the payments discourage brokers from obtaining the best trades for their customers鈥攙iolating…

  • Should you pay brokers for order flow?

    • For the retail investor, though, the problem with payment for order flow is that the brokerage might be routing orders to a particular market maker for their own benefit, and not in the investor鈥檚 best interest. Investors who trade infrequently or in very small quantities may not feel the effects of their broker鈥檚 PFOF practices.

  • How much do big market makers make on order flow payments?

    • The big market makers pay hundreds of millions of dollars a year to retail brokers for their order flows. Virtu filings show that it spent $660 million in 2020 on order flow payments (including some other market fees), as it brought in some $2.5 billion in market-making income.