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Payment for Order Flow: Why Your 'Free' Trades Aren't Actually Free

Beginner Investing • 6 min

Your "free" trades on Robinhood aren't free — someone is paying for them, just not you. That someone is usually a market maker like Citadel Securities, and the payment is called payment for order flow (PFOF).

Here's how it works: when you tap "buy" on a stock, Robinhood doesn't have to send that order to the New York Stock Exchange. Instead, it can sell the right to fill your order to a market maker, who pays Robinhood a small fee for every trade.

Insider Angle: the market maker profits from the tiny spread between what buyers pay and sellers receive, and retail orders like yours are especially attractive to them — you're less likely than a hedge fund to know something the market doesn't, which makes filling your order lower-risk and more profitable for them. "Free" was never really free — it just moved the cost somewhere less visible.
Try This: Look up your own broker's Rule 606 order-routing disclosure (every broker publishes one, usually linked in a footer) and see which market makers they route your orders to and what they're paid.
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