How markets work
Payment for order flow
Also called PFOF
A broker being paid by a trading firm for the right to execute its customers’ orders.
How it works
The arrangement is how many zero-commission brokers make money. The wholesaler that buys the flow profits from the spread; the broker receives a share; the customer pays no explicit commission.
Whether customers come out ahead depends on execution quality. A saved commission is worthless if the fill price is consistently a fraction worse, and a fraction on every trade compounds.
Where it misleads people
The cost is invisible by construction. It shows up as a slightly worse price, never as a line on a statement, which is precisely why it is worth knowing the arrangement exists.
Related terms
- BrokerThe firm that holds your account and sends your orders to the market on your behalf.
- Bid-ask spreadThe gap between the highest price anyone will pay and the lowest price anyone will accept.
- Best executionA broker’s regulatory duty to seek the most favourable overall terms reasonably available for your order.
- Market makerA firm that continuously quotes both a buy and a sell price, so there is always someone to trade with.
Mentioned in
More in How markets work
- Securities lending
- Order book
- Settlement
- Nominee account
- Short interest
- Short selling
- Market impact
- Short squeeze
All 33 How markets work terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.