Payment for Order Flow (PFOF)

Payment for Order Flow (PFOF) is the practice where brokerages receive compensation from market makers for routing customer orders to them. It is a controversial but widespread practice in retail trading.

How PFOF Works

Basic Flow

User places order → Broker receives order
                           ↓
                   Routes to market maker
                   (Citadel, Virtu, etc.)
                           ↓
              Market maker executes at slightly
              better than NBBO (National Best Bid/Offer)
                           ↓
              Market maker keeps spread profit
                           ↓
              Pays broker "take rate" (PFOF)

The Hidden Cost

Users pay no explicit commission but pay an implicit cost through slightly worse execution prices than the true market price.

Robinhood PFOF Rates

Equities (Stocks)

Metric	Value
Per-share rate	~$0.0023 (0.23 cents per share)
Per 100 shares	~23 cents
% of spread	~12.35% (regular trading hours)

Comparison (Q2 2025):

Market Maker	Robinhood	Schwab
Citadel	14.29¢/100 shares	9.51¢/100 shares
Virtu	14.32¢/100 shares	10.34¢/100 shares
Susquehanna	19.85¢/100 shares	9.45¢/100 shares

Robinhood's equity PFOF is 40-100% higher than Schwab's.

Options

Options PFOF is the real revenue driver — 4-5x higher than equities.

Market Maker	Robinhood	Schwab
Citadel	60.0¢/contract	41.2¢/contract
IMC	54.4¢/contract	43.4¢/contract
Susquehanna	60.5¢/contract	42.6¢/contract
Wolverine	42.4¢/contract	30.1¢/contract
Morgan Stanley	62.4¢/contract	—

Robinhood average: ~56¢/contract Schwab average: ~40¢/contract

Robinhood's Options Rate Card

Spread Width	Rate per Contract
Narrowest	$0.30
—	$0.38
—	$0.56
—	$0.70
—	$0.90
Widest	$1.20

Cryptocurrency

Crypto PFOF is the highest but least transparent:

"PFOF in crypto is 4.5-45x (up to 75x) higher than equity PFOF" — SEC research

Estimated range: 7.5-75 cents per equivalent 100 shares

Revenue Impact

Robinhood 2024 Revenue Structure

Source	Approximate %
PFOF (options + equity + crypto)	~40%
Net interest income	~40%
Subscriptions/Other	~20%

Why Options Dominate

Same capital deployed:

$1,000 in stocks = ~40 shares = 8¢ PFOF
$1,000 in options = ~200 contracts = 80¢ PFOF

Options generate ~10x the PFOF revenue per dollar invested.

Regulatory Environment

SEC Actions

September 2024: New rules announced restricting PFOF
November 2025: Gradual restrictions take effect
2026: Further enforcement expected

Market expectation: Robinhood's PFOF revenue will decline significantly by end of 2025.

Concentration Risk

Market Maker Distribution

While orders are routed to multiple market makers, concentration is extreme:

Citadel + Susquehanna: ~70-80% of options flow
Citadel alone: ~40% of equity flow (post-GME)

Best Execution Questions

SEC Rule 606 requires disclosure, but critics argue:

Same nominal rates don't mean same execution quality
Robinhood routes to market makers willing to pay, not necessarily offering best prices
SEC research: PFOF-routed orders execute ~0.5 basis points worse than market