PFOF (Payment for Order Flow)

A practice in which a brokerage routes customer orders to market makers in exchange for compensation, rather than sending them directly to an exchange. Citadel Securities and Virtu Financial are the largest recipients of retail order flow. PFOF enables commission-free trading at brokerages like Robinhood, but critics argue it creates conflicts of interest and may result in inferior execution prices for retail traders. The practice came under intense regulatory scrutiny after the 2021 meme stock frenzy.