Payment to order flow12/11/2023 But as long as the price the broker achieves for the client is better or equal to the price they could get from a third party not paying for order flow, the broker can be said to be acting properly. That order goes from investor to brokerage. Say an investor wants to buy 100 shares of stock in the Company XYZ. Sometimes the client doesn't know the broker receives payment. However, within the Payment for Order Flow model that process has an extra step. It's controversial because brokers still need to act in the best interest of the client, despite choosing third parties that pay them. The big bonus for brokers is they get paid twice: once by their client and again by the third party. What you need to know about payment for order flow. Many brokers sell their clients orders to market makers who pay the brokers for these orders. In 2016, the Financial Conduct Authority (FCA) warned that PFOF was bad for markets and trades because it creates a conflict of interest between brokerage firms and their clients and can distort the price formation process. Market makers are electronic trading firms. Where have you heard about payment for order flow? Payment for order flows refers to the practice whereby market makers pay brokerage firms to execute customer orders. The payment doesn't come from the broker's client, but the third party that the order goes to. Payment for order flow, or PFOF, refers to compensation a broker receives from a wholesale market maker in return for routing trades to that market maker. Abbreviated to PFOF, it's the payment a broker gets for sending orders to be executed.
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