What Is Payment for Order Flow? (And Does It Cost You?)

If a broker charges no commission, it still has to make money somewhere. For many US brokers, a big part of the answer is payment for order flow, or PFOF.

The plain-English version

When you place an order, your broker can route it to a market maker (a firm that fills trades) rather than straight to an exchange. The market maker pays the broker a small amount for sending that order its way. That payment — for your order flow — is PFOF.

So the trade is "free" to you because a third party is paying the broker on the back end.

Why it's controversial

The concern is a conflict of interest: the broker has an incentive to route to whoever pays it the most, not necessarily to whoever gives you the best price. Brokers are still required to seek "best execution," and the per-trade difference is usually tiny, but critics argue those fractions of a cent add up across millions of orders.

Regulators in the US have scrutinised PFOF heavily, and it's banned in some jurisdictions (for example, the UK and EU restrict it), which is part of why broker economics differ by region.

Does it actually cost you?

For most retail investors trading liquid US stocks, the practical impact per trade is small — often less than the spread you'd pay anyway. It matters more if you:

• trade large size, where small price improvements compound, or
• trade frequently, where fractions per share accumulate.

The honest takeaway: PFOF isn't a scandal for a casual investor, but "commission-free" is not the same as "cost-free." Compare execution quality and total cost, not just the headline.

The bigger hidden-cost picture

PFOF is one of several costs that hide behind a $0 commission — alongside spreads, FX fees, market-data fees and withdrawal fees. We break these down in the hidden costs of commission-free trading apps, and you can filter for genuinely low-cost options on our best low-fee trading platforms page.

Educational only — not financial advice.