Trading term

What is Payment for order flow?

Payment for order flow, or PFOF, is a wholesaler paying your broker for the right to fill your orders. It's legal and disclosed in the US, and banned outright in the EU under MiFIR Article 39a.

A retail order is worth money to whoever gets to fill it. Retail traders are less likely than a hedge fund to be trading on information the market maker doesn't have, so filling them is a safer business. Wholesalers pay brokers for that flow — typically a fraction of a cent per share — and that payment is what funds a good deal of commission-free trading.

The defence is that customers still come out ahead: wholesalers compete on price improvement, so many retail orders fill inside the public spread and the saving exceeds the commission that was removed. The objection is the conflict. Your broker is choosing where to route your order (see execution) and one of the routes is paying it, which is a hard thing to keep entirely separate from the duty to get you the best result.

Regulators have landed in different places. The SEC allows PFOF with disclosure, and requires brokers to publish routing and execution-quality reports. The EU went the other way: MiFIR Article 39a bans firms from receiving it for retail and professional client orders, and the transitional exemption member states could grant expired on 30 June 2026.

The UK is the case that gets stated wrongly most often. There's no FCA rule declaring PFOF banned by name. The FCA's position is that the payment is an inducement, and it has said it struggles to see how a firm receiving it can be meeting its inducement rules and its best-execution obligation at the same time. The effect is that the practice doesn't happen in UK equities — but the mechanism is supervisory pressure under existing conduct rules, not a statutory prohibition.

For example

You buy 500 shares commission-free. Your broker routes the order to a wholesaler that fills you at $50.015 against a $50.02 offer — $2.50 of price improvement — and pays your broker roughly $0.0015 a share, about $0.75, for the flow. You paid nothing visible; two parties were paid anyway.

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Why it matters to you

PFOF is the answer to why trading is free, and knowing that changes what you compare brokers on. Commission is easy to read and now often zero; execution quality is harder to read and is where the cost moved. It also explains why the same broker can't offer the identical commission-free model everywhere — the revenue that funds it is legal in one jurisdiction and prohibited in another.

⚠ "The UK banned PFOF" is the wrong shorthand

The EU ban is a statute you can cite: MiFIR Article 39a. The UK never passed an equivalent. The FCA treats the payment as an inducement that sits badly with a firm's conflict-of-interest and best-execution duties, and firms have responded by not doing it. Same outcome in practice, different legal basis — and worth getting right, because the two are often reported as one thing.

Frequently asked questions

What is payment for order flow?

It's compensation a broker receives from a market maker or wholesaler in return for routing customer orders to it. The payment is usually a fraction of a cent per share and is disclosed in the broker's routing reports.

Is payment for order flow banned?

In the EU, yes — MiFIR Article 39a prohibits firms from receiving it for retail and professional client orders, and the transitional exemption ended on 30 June 2026. In the US it's legal with disclosure. The UK has no explicit ban, but the FCA treats it as an inducement that conflicts with best-execution and conflict-of-interest duties, so it isn't used there.

Does payment for order flow cost me money?

Not as a visible charge. The argument against it is about routing incentives rather than a fee: the venue paying your broker may not be the venue that would have given you the best fill. Wholesalers do compete on price improvement, so many retail orders fill better than the public quote — the honest answer is that it's a trade-off, not a straightforward loss.

Which brokers use payment for order flow?

Most US commission-free retail brokers do, and they're required to publish it. Check the broker's routing disclosures rather than assuming — the reports name the venues and the payment rates.

Read the full guide

Getting startedWhat Is a Broker?A broker sends your order to the market and then holds the shares for you. Here's what that means, whose name your shares are actually in, and how a $0 broker still makes money.12 min read

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