Payment for Order Flow (PFOF)
Market Microstructure glossary · Market Microstructure Fundamentals
Definition
Compensation paid by a market maker to a broker in exchange for routing the broker's customer orders to the market maker.
Payment for Order Flow (PFOF) in plain English
When you place a stock trade in a free app, your broker often doesn't handle it themselves — they hand your order to a big trading firm (a market maker) that actually fills it, and that firm pays the broker a small fee for sending it their way. That payment is Payment for Order Flow: the market maker is essentially buying the right to trade against your order. It's why some apps can charge you zero commission — they're paid by the firm instead. The catch people debate: you might get a slightly worse price, so it's worth knowing the broker has a reason to route your order toward whoever pays them, not necessarily wherever you'd get the best deal.
Also called: PFOF
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