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.[1] The market maker profits from the bid-ask spread and rebates a portion of this profit to the routing broker as PFOF. Another fraction of a penny per share may be routed back to the consumer as price improvement.[2][3]
PFOF is a controversial practice that has been called a "kickback" by its critics.[4] 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 execution.[5][6]
- ^ "Payment for Order Flow". U.S. Securities and Exchange Commission.
- ^ McCrank, John (October 8, 2019). "U.S. online brokers still profiting from 'dumb money'". Reuters.
- ^ Massa, Annie (March 9, 2017). "Payment for order flow". Bloomberg News.
- ^ McMillan, Alex Frew (May 29, 2000). "Q&A: Madoff talks trading". CNN. Archived from the original on 17 August 2020.
- ^ Franck, Thomas. "GOP Senator Toomey debuts bill to protect broker revenues, payment for order flow". CNBC. Retrieved 2023-04-06.
- ^ "Virtu boss defends payment for order flow after Reddit frenzy". Financial Times. 2021-02-11. Retrieved 2023-04-06.