Payment for Order Flow

Many zero-commission brokers are paid by market makers to send them customer orders. Here is how payment for order flow works, how it affects your trades and why Europe banned it while the U.S. still allows it.

How it works

When you place an order with many U.S. brokers, it goes not to an exchange but to a wholesale market maker. The market maker pays the broker a small amount per share for that order flow. Retail orders are valuable because they are small and usually not based on inside information, so they are cheaper to trade against.

Your order may travel through several firms before it is filled.

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