Payment For Order Flow
Updated on March 2, 2023
Payment for order flow (PFOF) is the commission or compensation online brokers receive when third parties execute orders for them. This is a phenomenon observed majorly in the US and is followed commonly by discount brokers and commission-free investment apps.
It is an arrangement between businesses, but it generally does not impact the end client or investor. It helps these apps or discount brokerages earn additional money.
In case of active traders who regularly and frequently trade in options, PFOF might impact the final costs of trades. Also for some investors or traders, security might be a concern area and thus they need to monitor the trading activity or accounts closely.