What Is Payment for Order Flow (PFOF)?
Payment for order flow, or PFOF, is a practice where a broker is paid by a market maker in return for routing its customers' buy and sell orders to that market maker for execution. The broker receives a small payment per order, and this revenue can allow it to offer trading without an explicit commission. Capital at risk.
Reviewed by Yaniv Barshaf · Fees verified June 2026 · Our methodology
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How commission-free brokers earn from order flow
When you place a trade with a commission-free broker, that order does not necessarily go straight to a public exchange. Instead the broker may route it to a wholesale market maker, a firm that executes the trade off-exchange and profits from the difference between the price it buys at and the price it sells at, the bid-ask spread. In exchange for a steady stream of retail orders, the market maker pays the broker a fee, the payment for order flow. This revenue substitutes for the commission the broker no longer charges you directly. In effect, the business model shifts the visible cost from an upfront commission to a less visible arrangement between the broker and the market maker, funded by how your order is executed.
The debate around PFOF
PFOF is contested because it creates a potential conflict of interest. A broker paid to route orders to a particular market maker has a financial incentive to send flow to whoever pays the most, which may not be the venue offering you the best available price. Critics argue this can quietly worsen execution quality, so that the money you appear to save on commission is offset by a marginally worse fill. Defenders counter that PFOF is precisely what made zero-commission trading viable for ordinary investors, democratising market access, and that best-execution obligations still require brokers to seek good outcomes for customers. The core tension is transparency: the cost is real but hard for a retail investor to see, measure, or compare, which is what draws regulatory scrutiny.
Regulatory status: United Kingdom
In the United Kingdom, payment for order flow has been banned for well over a decade. The Financial Conduct Authority moved against the practice in 2012, treating PFOF as an inducement incompatible with its rules on managing conflicts of interest and delivering best execution to clients. The FCA's position is that a broker cannot properly serve a customer's interest while being paid by a third party to direct that customer's orders to it. As a result, UK retail investors have long been shielded from this particular conflict. Notably, the FCA has signalled it may revisit and review its stance on order-flow arrangements during 2026, so the settled position could be re-examined, though as of writing the prohibition remains firmly in place.
Regulatory status: European Union
The European Union has moved to prohibit PFOF through amendments to the Markets in Financial Instruments Regulation, known as MiFIR. Under Article 39a, investment firms are barred from receiving any fee, commission, or non-monetary benefit from a third party for routing retail or professional client orders to a particular execution venue; the amending regulation entered into force in 2024. A transitional carve-out allowed member states where firms already received PFOF to exempt them temporarily, and Germany was the only state to take up this option. That exemption is set to expire on 30 June 2026, after which PFOF is prohibited across the entire EU with no remaining national carve-outs. Investors should treat these dates as the regulatory framework rather than a guarantee about any individual firm's practices.
Regulatory status: United States
In contrast to the UK and EU, payment for order flow remains legal in the United States, where it is a well-established and significant source of revenue for several large commission-free brokers. US regulators have examined PFOF closely and imposed disclosure requirements so that the arrangements are visible in regulatory filings, and reforms to execution and transparency have been debated, but an outright ban has not been enacted. This divergence is important: the same broker brand, or the same broad business model, can be funded very differently depending on the market it operates in. A US investor's commission-free trade may be underpinned by PFOF, whereas the equivalent trade for a UK or EU investor cannot be, because the practice is prohibited there.
What this means for you in practice
The headline lesson is that commission-free almost never means cost-free; it means the cost has been relocated. In the US, PFOF is one way zero-commission trading is funded. In the UK and EU, where PFOF is banned, brokers recover the cost of commission-free trading through other channels: currency-conversion fees on foreign trades, interest earned on your uninvested cash balances, subscription or premium account tiers, wider spreads, and charges on ancillary services. For a UK or EU investor, the practical takeaway is not to relax because PFOF is prohibited, but to look for where the revenue actually comes from. Scrutinise FX rates, ask what interest the broker keeps on your cash, and read the tariff for the charges that quietly fund a service marketed as free.
The bottom line
PFOF lets some brokers offer commission-free trading by earning from routing your orders to market makers, but it carries a conflict-of-interest concern that led the UK and EU to ban it, while the US allows it. Wherever you invest, remember that commission-free is not cost-free, so look for how the broker actually earns from you.
Frequently Asked Questions
What is payment for order flow in simple terms?
It is a payment a broker receives from a market maker in return for sending its customers' orders to that market maker to execute. The broker earns revenue per order, which can let it offer trading without charging you an explicit commission.
Is PFOF banned in the UK and EU?
Yes. The UK's FCA banned PFOF in 2012 as an inducement conflicting with best execution. The EU prohibited it under MiFIR Article 39a from 2024, with Germany's transitional carve-out expiring on 30 June 2026, after which it is banned EU-wide.
Is PFOF legal in the United States?
Yes. PFOF remains legal in the US and is a major revenue source for several commission-free brokers, subject to disclosure requirements. This means the same commission-free model is funded differently in the US than in the UK or EU, where the practice is prohibited.
If PFOF is banned here, is my trading truly free?
No. Where PFOF is banned, brokers recover costs through other channels: currency-conversion fees, interest kept on your uninvested cash, subscription tiers, and wider spreads. Commission-free rarely means cost-free, so identify where the revenue actually comes from before assuming a service is genuinely free.