Market mechanics
What is order routing (PFOF) and how does payment for order flow affect execution speed?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Payment for order flow (PFOF) is compensation brokers receive for routing retail orders to specific market makers; it subsidizes commission-free trading but raises questions about best execution quality.
How it works
SEC Rule 606 requires brokers to disclose order-routing practices and PFOF payments quarterly, allowing investors to assess whether their broker prioritizes payment over optimal price improvement and speed.
An example
A broker might route your order to a wholesaler paying for flow rather than the exchange showing the best quoted price at that instant.
Risk & limitations
Even with price improvement disclosures, PFOF arrangements can create a conflict of interest between broker revenue and the trader's best execution.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.