Why Is ‘Payment for Order Flow’ (PFOF) a Controversial Topic in Relation to Price Improvement?

PFOF is the practice where a broker receives compensation from a market maker for routing client orders to them for execution. It is controversial because critics argue that the broker's incentive is to maximize their payment, not necessarily to secure the absolute best execution price for the client, despite the occurrence of price improvement.

This potential conflict of interest raises questions about whether the best possible positive slippage is being achieved or if the order flow is being sold for the broker's profit.