Payment for order flow

Payment for order flow is a practice where a broker routes its customers' buy and sell orders to a particular market maker in exchange for a small payment, rather than sending the order directly to an exchange. It is one of the ways brokers that advertise commission-free trading actually make money.

The market maker profits from the bid-ask spread on the orders it receives this way, and shares a slice of that profit back with the broker. Regulators require brokers to still get customers a fair price on the trade, but the arrangement has been criticized for creating a conflict of interest between the broker's revenue and getting the best possible execution for the customer.