What Is a ‘Payment for Order Flow’ (PFOF) Model and How Does It Affect the Spread?

PFOF is a practice where a broker receives compensation from a market maker for directing client orders to them for execution. This model can benefit retail traders by allowing market makers to offer slightly tighter spreads than the public exchange.

However, critics argue it can lead to conflicts of interest, as the broker may not always achieve the absolute best price for the client.