Payment for order flow is a form of compensation, usually in terms of fractions of a penny per share, that a brokerage firm receives for directing orders for trade execution to a particular market maker or exchange. Payment for order flow is common in options markets and is increasingly found in equity transactions. Equity and options trading has become increasingly complex with the proliferation of exchanges and electronic communication networks. Although the notorious Bernard Madoff was an early practitioner of payments for order flow, the practice is perfectly legal provided both parties to a PFOF transaction fulfill their duty of best execution for the customer initiating the trade. According to the U.S. Securities and Exchange Commission, payment for order flow is a method of transferring some of the trading profits from market-making to the brokers that route customer orders to specialists for execution.Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support.

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