Payment-For-Order-Flow The SEC''s Plan To End It
Payment-For-Order-Flow The SEC''s Plan To End It Authored by Lance Roberts via RealInvestmentAdvice.com, “Payment For Order Flow” remains a contention between retail investors and Wall Street. On the one hand, it creates the ability to have “free trading” for retail investors. However, it also creates an opportunity for Wall Street to “front-run” individuals for profit. In financial markets, “Payment For Order Flow,” or “ PFOF,” refers to a broker’s compensation from third parties to influence how the broker routes client orders for fulfillment. Read that again. For years, paying for order flows allowed firms to centralize customers’ orders for another firm to execute. Such allowed smaller firms to use economies of scale of larger firms. Such enables small firms to combine orders with larger firms, providing better execution quality. Over the years, the decimalization of the trading securities diminished the profitability of trade execution. Such pushed Wall Street toward payment for order flow as a way to generate revenue and subsidize the move to zero commissions.
Payment-For-Order-Flow The SEC''s Plan To End It
Payment-For-Order-Flow The SEC''s Plan To End It Authored by Lance Roberts via RealInvestmentAdvice.com, “Payment For Order Flow” remains a contention between retail investors and Wall Street. On the one hand, it creates the ability to have “free trading” for retail investors. However, it also creates an opportunity for Wall Street to “front-run” individuals for profit. In financial markets, “Payment For Order Flow,” or “ PFOF,” refers to a broker’s compensation from third parties to influence how the broker routes client orders for fulfillment. Read that again. For years, paying for order flows allowed firms to centralize customers’ orders for another firm to execute. Such allowed smaller firms to use economies of scale of larger firms. Such enables small firms to combine orders with larger firms, providing better execution quality. Over the years, the decimalization of the trading securities diminished the profitability of trade execution. Such pushed Wall Street toward payment for order flow as a way to generate revenue and subsidize the move to zero commissions.