![]() With better trading technology and the increasing accessibility to the stock market by retail investors, trading has become increasingly complex. How does Payment for Order Flow Work?Īs the SEC defines it, payment for order flow is “a method of transferring some of the trading profits from the market makers to the brokers that route customer orders to specialists for execution.” Meaning, Canadian brokers can actually accept PFOF, just not on Canadian securities. ![]() However, for non-Canadian listed securities, Canadian brokerages adhere to the trading laws where execution occurs. Payment for order flow cannot be accepted by Canadian brokerages on Canadian listed securities and options. In Canada, Wealthsimple recently announced that they now accept payment for order flow on US listed securities and options which has Canadians questioning what ‘PFOF not being allowed in Canada’ really means. Payment for order flow (PFOF) is a practice where a stockbroker receives compensation from a market maker or liquidity provider for directing its clients’ trade transactions to that market maker.Ī market maker is a broker (could be an individual or a firm) that quotes both sell and buy positions for a tradable asset to turn a profit off the bid-ask spread.īy being able to act on both sides of a transaction as the buyer and the seller, market makers can make profits through narrow spreads. Under current Canadian financial laws, payment for order flow is not allowed on Canadian listed securities, however Canadian brokerages may accept payment for order flow on non-Canadian listed securities such as US securities.
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