PFOF (Payment for Order Flow)

PFOF stands for Payment for Order Flow and refers to a practice where brokers are paid for directing customer orders to market makers or other traders. These traders pay brokers for access to customer orders and can use this information to execute their own trades.

For retail investors, PFOF can mean that their orders may not always be executed at the best possible price, as the broker may not be looking for the best possible price but instead favoring the trader who pays for order flow. This can lead to worse execution prices and higher costs for the retail investor. It is important for retail investors to educate themselves about the practice of PFOF and its impact on their orders before trading with a broker.