In the context of the securities industry, payment for order flow (PFOF) is the revenue earned by a broker-dealer for directing its customers' orders to another party for execution, rather than executing the orders itself. The practice is controversial because it can create a conflict of interest between the broker-dealer and its customers.
The practice of payment for order flow is common among discount brokerages, which typically do not charge their customers commissions for trades. Instead, these brokerages earn revenue from PFOF.
When a customer places an order with a discount broker, the broker typically routes the order to a market maker or another broker-dealer that is willing to pay for the order flow. The market maker or other broker-dealer then executes the trade and pays the discount broker a fee for directing the order.
The practice of PFOF can create a conflict of interest because the broker-dealer may have an incentive to route orders to the party that is willing to pay the highest fee, rather than to the party that will provide the best execution for the customer.
The SEC has proposed rules that would require broker-dealers to disclose their PFOF arrangements to their customers. The SEC is also considering whether to prohibit or restrict the practice of PFOF.
Do professional traders use order flow?
There is no one answer to this question as different professional traders may have different opinions on whether or not to use order flow data when trading. Some traders may find that this information is helpful in making trading decisions, while others may not find it to be useful. Ultimately, it is up to the individual trader to decide whether or not to use order flow data when trading.
How much does Robinhood make on PFOF?
According to their website, Robinhood makes money primarily through two sources: interest on the cash and securities in customer accounts, and commission-free trading.
In terms of interest, Robinhood makes money on the cash that customers keep in their accounts. They also make money on the securities that customers hold in their accounts. Robinhood makes money on the difference between the interest they earn on the cash and securities in customer accounts and the interest they pay out to customers.
In terms of commission-free trading, Robinhood makes money on the spread between the bid and ask prices on the securities that customers trade. Robinhood also makes money on the order flow that they route to market makers.
Does TD Ameritrade use payment for order flow?
Yes, TD Ameritrade does use payment for order flow. In fact, TD Ameritrade is one of the largest recipients of payment for order flow in the industry. While TD Ameritrade does not disclose the specific amount it receives for order flow, it is estimated that the company receives around $0.30 per share traded. What happens to my money if Robinhood? If you have an account with Robinhood and you close it, your money will be transferred to another account that you specify. Is Webull payment for order flow? No, Webull does not charge for order flow.