Payment For Order Flow

Whenever you place somehow trade together with your broker. That broker may or may not send the trade to a third-party market maker like a large financial institution or even a bank. And this actually conducts the trade, and that is connecting buyers and sellers together. 

And here are the Market makers earning their money. They make their money by simply buying a security from a seller and then they are turning it around and selling it to another buyer for slightly more. This is often for a difference of just pennies.

However when this is done  on a huge scale, these pennies which was mentioned above can be add up to major revenue for the market maker.

Tho this is in a market maker’s best interest for brokers to send them as many trades as they possible can. Together with the will to pay brokers to send trades their way to accomplish this.

And let’s say that the broker accepts those payments and routes trades trades and investments to these paying market maker. Then it is said that te broker had accepted payment for order flow.

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