How Does PFOF Affect the Execution Price a Retail Trader Receives?

PFOF can potentially affect the execution price a retail trader receives by creating a conflict of interest for the brokerage. The brokerage is incentivized to route the order to the market maker who pays the most, not necessarily the one who offers the best execution price.

While regulation requires "best execution," the market maker profits by capturing the bid-ask spread. This means the retail trader might receive a price that is slightly worse than the best available price on an exchange, which is a subtle, hidden cost of the trade.