Payment for Order Flow Data, Analysis and Insights 2023

Alexander Voigt

By Alexander Voigt

Last Updated: March 24, 2023

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Payment for order flow (PFOF) is the compensation paid by venues like Citadel to brokerage companies like TD Ameritrade in exchange for routing client orders to the venue instead of sending them directly to the stock exchange.

This article reveals the payment for order flow details for the top 10 brokerage firms, explains the concept and provides insights into the PFOF methodology.

The first 606 disclosures with venue details were officially published for the first quarter of 2020. Our current database includes 251,373 data points and covers all data from January 2020 to December 2022.

Brokers are required to publish their statements by the end of January, April, July, and October for the previous quarter. The statistics, comparisons and charts in this article are updated annually or upon media request.

If you use the data provided as a source for your story, please cite https://daytradingz.com/payment-for-order-flow/ as a reference.

payment for order flow
Payment for Order Flow: Key Facts
Payment for Order Flow Detail
👮 Required by U.S. Securities and Exchange Commission
🏢 SEC Rule 606
📆 Release Dates Apr. 30, Jul. 31, Oct. 31, Jan. 31
💰 Paid by Venues
💰 Received by Brokers
✎ Acronym PFOF

Statistics

In 2020, $2.75 billion were paid to the 10 leading retail brokerages TD Ameritrade, Robinhood, E*Trade, Charles Schwab, Fidelity, Webull, TradeStation, Ally Invest, Bank of America and Wells Fargo. TD Ameritrade and Robinhood made the most money by selling order flow to venues like Citadel Securities, Global Execution Brokers, and Virtu Americas.

The released data of 2021 revealed that the payment for order flow grew by 32% to $3.62 billion in 2021 (vs $2.75 billion on 2020). TD Ameritrade further extended its market leadership in this segment to over 1 billion (+24%), while Webull saw the biggest percentage gain (226%).

The PFOF statistics of 2022 indicate a decline in the overall payment for order flow back to the 2020 level. The overall PFOF paid to the 10 leading U.S. brokerages in 2022 is $2.89 billion, compared to $3.62 billion in 2021 and $2.75 billion in 2020. Robinhood lost about $99.2 million and E*Trade $29.6 million in 2022 vs. 2020. In contrast, Webull earned $185.1 million and Charles Schwab $73.1 million more.

Brokerage 2020 (in $) 2021 (in $) 2022 (in $)
TD Ameritrade 1,148,550,502 1,421,044,615 1,171,642,061
Robinhood 687,094,992 974,166,848 587,901,295
E*Trade 402,493,959 454,431,992 372,848,438
Charles Schwab 245,463,984 319,998,932 318,590,047
Webull 63,853,903 208,448,408 248,959,874
Fidelity 134,314,911 161,850,777 121,835,081
TradeStation 41,844,854 58,203,831 54,671,224
Ally Invest 15,270,053 13,762,279 9,652,332
Wells Fargo 5,159,316 6,107,099 3,320,686
Bank of America 8,640,784 3,328,754 (2,099,125)
Grand Total 2,752,687,260 3,621,343,534 $2,887,321,913

Quarterly Statistics

payment for order flow per quarter chart

The payment for order flow income consolidates on a mid level. The fourth quarter of 2022 generated a total of $665,902,306 of income for the top 10 brokerage firms. This is the second-lowest quarter since the beginning of payment for order flow tracking, and 13.2% below average.


The detailed quarterly split per broker provides further insights into the quarterly results.

payment for order flow per quarter

The split per broker shows that the PFOF income declines across the board, while we can see that Bank of America does not make money with PFOF anymore.


payment for order flow quarterly per broker

TD Ameritrade still dominates the payment for order flow business, followed by Robinhood and E*Trade.


Broker Statistics

1. TD Ameritrade Payment for Order Flow

The annual TD Ameritrade payment for order flow income in 2020 was $1.15 billion, with a monthly average of $96 million. TD Ameritrade continues to have the highest revenue among all brokers in this list. The monthly average 1-12/2021 grew to $118 million for a grand total of $1.42 billion. In 2022, the monthly average was $97.6 million, and $1.17 billion in total.

2. Robinhood Payment for Order Flow

The Robinhood payment for order flow saw significant growth in 2020 to $0.69 billion with a monthly average of $57 million. The trading app is more popular than ever before. New mobile trading apps like Webull may take some market share, but Robinhood leads the segment of mobile trading apps. The monthly average 1-12/2021 grew to $81 million for a grand total of $0.97 billion PFOF. In 2022, the monthly average was $48.99 million, and $587.9 million in total.

See Also: Robinhood review

3. E*Trade Payment for Order Flow

The E*Trade payment for order flow is the third-largest in the list, with a total of $0.40 billion in 2020 and a monthly average of $34 million. The monthly average 1-12/2021 grew to $38 million for a grand total of $0.45 billion PFOF. In 2022, the monthly average was $31.1 million, and $372.8 million in total.

4. Charles Schwab Payment for Order Flow

The Charles Schwab payment for order flow is the 4th-largest in the list, with a total of $0.25 billion in 2020 with a monthly average of $20 million. The monthly average 1-12/2021 grew to $27 million for a grand total of $0.32 billion PFOF. In 2022, the monthly average was $26.5 million, and $318.6 million in total.

Charles Schwab acquired TD Ameritrade and concluded the acquisition for $22 billion. The deal was announced in November 2019 and completed in October 2020. Therefore, TD Ameritrade and Charles Schwab payments for order flow go to the balance sheets of Charles Schwab (SCHW).

5. Webull Payment for Order Flow

The Webull payment for order flow is low compared to the competitors, but it shows the strongest percentage gains compared to the previous year. The PFOF 1-12/2021 is 226% higher vs. 1-12/2020. June 2021 was also the strongest PFOF month in the history of Webull, with a total of $20 million received. In 2022, the monthly average was $20.7 million, and $249.0 million in total. With this steady growth, it is most likely that they will outrank other brokers in the mid-term.

6. Fidelity Payment for Order Flow

Fidelity belongs to the top 5 brokerages receiving the highest PFOF compensation from venues. The PFOF income in 2020 was $134 million with a monthly average of $11.2 million. In 1-12/2021, the monthly average increased to $13.5 million and a total of $162 million in 2021. In 2022, the monthly average was $10.2 million, and $121.8 million in total.

7. TradeStation Payment for Order Flow

In 2020, TradeStation received $41.8 mn PFOF with a monthly average of $3.5 mn. The payment for order flow income 1-12/2021 grew significantly by +39% compared to 1-12/2020. In 2022, the monthly average was $4.6 million, and $54.7 million in total.

8. Ally Invest Payment for Order Flow

Ally Invest is the 3rd-smallest brokerage company on the list and received only $15.3 mn PFOF from venues in 2020, and $13.8 mn in 2021. In 2022, the monthly average was $0.8 million, and $9.7 million in total.

9. Wells Fargo Payment for Order Flow

Wells Fargo received $5.2 mn PFOF from venues in 2020, and $6.1 mn in 2021. In 2022, the monthly average was $0.3 million, and $3.3 million in total.

10. Bank of America Payment for Order Flow

It seems that Bank of America now pays more money for order flow to stock exchanges than they receive from venues for routing order flow to them. The cause for this could be a strategic change for order routing principles or the higher demand from Bank of America clients to route the orders directly to a specific stock exchange instead of using smart routing.


Venue Statistics

The venues are those who pay the brokerage houses for their order flow. Looking at the per venue statistics paints a clear picture of the market leaders. Citadel, Global Execution Brokers and Dash Financial Technologies dominate from the venue side with about about 62% of the overall business.

Venue 2020 (in $) 2021 (in $) 2022 (in $)
Citadel 1,122,990,199 1,423,975,903 995,497,864
Global Execution Brokers 447,128,821 640,126,586 428,812,027
Dash Financial Technologies 111,849,476 204,153,712 362,604,118
Wolverine 199,868,910 418,246,526 323,973,374
other 243,999,928 237,609,202 302,673,515
Virtu Americas 311,970,264 329,811,280 236,920,852
G1 Execution Services 195,365,545 147,008,781 138,106,736
Two Sigma Securities 63,545,982 140,906,710 70,223,117
UBS Securities 55,968,134 79,504,834 28,510,311
Grand Total 2,752,687,260 3,621,343,534 2,887,321,913

Payment for Order Flow by Asset Category

The categories Options and NON-S&P500 stocks dominate the payment for order flow revenues. It is not a surprise since the spread, which is the baseline for the income, for S&P500 stocks is small since the liquidity is immense. Therefore it is hard to generate price improvements for clients or meaningful income to be shared between venues and brokers. The payment for order flow is dominated by the options trading category.

venue and asset category

You can also see that various venues are specialized in one or the other asset category. Venues like Citadel pay for order flow in all three categories, from S&P 500 stocks to NON-S&P 500 stocks and options. Global Execution Brokers and Dash Financial Technologies are specialized in options, while Virtu Americas focuses on stocks.

venues

Payment for Order Flow by Month

In 2020, we saw significant growth in order flow payments, mainly affected by the global challenges. With more people working from home, and higher demand to make money trading the stock market because of zero interests, the online trading industry saw news highs quarter by quarter.

Another reason for the growth was the introduction of zero commission offerings across all leading online brokerages. That’s an interesting situation. Zero commissions boost payment for order flow revenues since retail investors trade more because it is free to trade.

In January 2020, the payment for order flow was $124.6 million. In June 2020, we saw a temporary peak at $309.5 million. 2020 ended with a record breaking payment for order flow of $310.0 million in December.

payment for order flow per month

In 2021 we saw the highest payment for order flow month in February, with $385.6 million paid by venues to the 10 leading online brokerages. The strong uptrend was mainly caused by the meme stock fancy initiated by the WallStreetBets Reddit forum. The demand in trading stocks like GME, AMC and BBBY decreased, but the overall trading activity is still on a high level.

In 2022, we had two peaks, one in March and one in August, but other than that, the monthly PFOF was relatively flat from an overall perspective.


Brokerage Mapping

Some brokerages used different company descriptions within the brokerage 606 disclosures, and some also have different company divisions where the payments for order flow are allocated. Here is our brokerage mapping:

broker mapping

Venue Mapping

The list of venues is long, and in some cases, they are also differently mentioned within the brokerage 606 disclosures. Therefore, we mapped the venues and focused on the key players. Here is our venue mapping:

venue mapping


Payment for Order Flow Concept

You may ask yourself why a venue does pay money to the brokerage firm if the venue does all the work. The answer lies between the bid and ask; the so-called bid ask spread.

Let’s say you are interested in buying stock of company XYZ. The order book shows a national best bid of $105.50, and the best ask is $106.00. If you send a market order to buy 100 shares for the best possible price, your order would probably be executed at $106.00 (I want to keep this example simple, and things like hidden orders, market depth etc., are left aside.)

If in the next moment the best bid and ask are still at $105.50 and $106.00, and you hit the sell market button to close your position immediately, then your order would probably be executed at $105.50.

In that case, you lost 50 cents per share, which equals a total loss of $50.

If you allow your broker to take care of the order routing, they route the retail order to third party firms like Citadel Securities or Two Sigma Securities, called venues.

They receive thousands of buy and sell orders for hundreds of stock symbols every minute. An algorithm matches the client orders if possible. Since not all orders with exact the same order size arrive at the venue’s system at the exact same time, proprietary algorithms average down the order flow and evaluate the potential of price improvements. The venue always has the option to route the order further to the stock exchange.

Back to our example, your buy market order for 100 shares of company XYZ arrives 10 milliseconds before another trader wants to sell 100 shares of company XYZ by using a market order. Typically you would get filled at the next best ask at $106, and he at the next best bid at $105.5. But the venue now maps both orders using their algorithms and shares the profit made.

A significant portion of the benefit of $0.50 per share goes to the retail traders by providing them with a price improvement. Let’s say the buyer gets a fill at $105.8 instead of $106.00, and the seller receives a fill at $105.7 instead of $105.5. Both traders are happy, they did not pay commissions, and both got a price improvement of 20 cents.

The remaining 10 cents (the difference between $105.7 and $105.8) is the profit for the venue. But the venue shares this profit with the brokerage business, so they pay for order flow. This profit split is the Payment for Order Flow, where the venue pays the retail brokerage firms for sending liquidity to them, based on the order flow arrangements and conditions.

Now you may legitimately ask yourself how a venue or broker could make money if the most significant portion of the benefit goes to the investor via price-improvements. Until the end of 2019, you could only guess how much money was made via payments for order flow.

In the past 6 months, 32,600 people ask search engines every month “How Does Robinhood Make Money.” Thanks to the SEC’s revised requirements in SEC Rule 606, U.S. brokerages must list the exact paments received within the 606 disclosure every quarter since 2020. Now we can answer the question of how much money do retail brokerages make by selling order flow.

Zero Commissions via Payment for Order Flow vs Direct Access Broker Order Routing

order routing logic payment for order flow
order routing logic direct access broker

Market Potential

January 2021 was a month that we would remember for a long time. Robinhood, Wallstreetbets, Hedge Funds, Citron Research, GameStop, AMC Entertainment, Nokia, BlackBerry dominated the street news.

The Reddit forum r/wallstreetbets grew from 1.8 million members on January 1, 2021, to 7.6 million on January 31, and 10.0 million in April 2021. From April to July 2021, the forum member count grew to 10.7mn, but only by 300,000 more until October 2021. The Robinhood app downloads skyrocketed to new highs, some of the mentioned company stocks explode with temporary gains of over +1,000% and fell 90% after that.

One could only guess how this media presence would affect the payment for order flow revenue.

A controversial discussion already began if payment for order flow is beneficial, transparent, and fair. We may see some regulatory changes in the future.

Latest News and Interesting Reads on PFOF:

  1. Robinhood fell as SEC scrutinizes crypto, payment for order flow — Quartz (qz.com)
  2. Citadel Securities founder ‘quite fine’ with ending payment for order flow | Financial Times (ft.com)
  3. Extremely difficult’ for SEC to eliminate payment for order flow: Interactive Brokers founder (yahoo.com)
  4. Staff Report on Equity and Options Market Structure Conditions in Early 2021 (sec.gov)
  5. Special Study: Payment for Order Flow and Internalization in the Options Markets (sec.gov)

If brokers are not allowed to receive payments for order flow anymore, a major source of income for them will disappear. Then, the chances are that commissions per trade have to be re-introduced.

Official statistics clearly show that most client orders see price improvements if the orders are routed to the venues. Therefore there is no clear right or wrong.

Direct Market Access vs Payments for Order Flow

Specialized brokers with direct market access don’t rely on payments for order flow. Instead, they charge low fees and enable traders to route their orders to the preferred stock exchange or ECN. Due to the direct order routing, order execution can be beneficial, especially when trading high volumes.


Conclusion

Selling order flow has become one of the primary sources of income for U.S. Brokers. TD Ameritrade and Robinhood dominate the market, while Webull shows the most significant percentage growth.

Charles Schwab bought TD Ameritrade for $26 billion, and Morgan Stanley acquired E*Trade for $13 billion. We may also see further consolidation activities in the brokerage sector. Depending on how the mergers are executed and which entities remain, the market share per brokerage may change 2021 and beyond.

Payment for order flow became the primary source of income for Robinhood. In 2020, Robinhood had a total net revenue of $958.8 mn and thereof, $687.09 was received via payments for order flow. That means that 71% of total revenues came from PFOF.

Robinhood is listed on Nasdaq with the ticker symbol HOOD since July 29, 2021. The Robinhood stock price will primarily depend on the further development of PFOF income, while other brokers like TD Ameritrade and Charles Schwab have other primary sources of revenue.

The quarterly 606 disclosures are the first step in the right direction. The current media presence shows that even more transparency would be beneficial to the industry.

Investors involved in day trading should keep in mind that zero commissions brokers limit the order routing flexibility. At the same time, direct access brokers allow day traders to choose the order routing ECN and exchange directly.


FAQ

What Is Payment for Order Flow

Payment for order flow means that venues like Citadel Securities pay money to brokerage businesses like TD Ameritrade for routing retail buy and sell orders to the venue system instead of sending it directly to the stock exchange.

Payment for order flow is typically beneficial for all parties involved.

  • Back in the days, brokerages had to pay fees to stock exchanges like NYSE and Nasdaq if a trade took liquidity, and they charged commissions of typically $5 per order from clients for each trade. Today, brokers do not pay fees to the stock exchange for taking liquidity if retail orders are routed to the venue. Nearly all leading retail brokers offer zero-commission trading for stocks and options.
  • Besides the benefit of paying zero commissions, now traders and investors often receive a better execution price if they are using market orders since the customer orders get mapped in the venue’s system, which often leads to price improvements compared to the NBBO (national best bid and offer). In Q4 2020, TD Ameritrade stated that 96.9% of all orders improved.
  • Venues also benefit from the order flow since they keep some of the profits made from matching orders within their internal systems. The spread between the bid and ask is the source of income.

How Do I Know if My Broker Receives Payment for Order Flow

You can check the public 606 disclosure of your broker to see if they receive payments for order flow. Unfortunately, it is not that easy to find the statements on a brokerage website. Use your favorite search engine to look for your brokerage name and add 606 disclosure to find it faster.

Alternatively, you can see it like this: If you are in control of the order routing, then your broker probably does not receive any PFOF. But if you are using order routing methods like “smart” or “intelligent,” then your broker probably routes the order to one of the venues and receives PFOF.

The U.S. Securities and Exchange Commission Rule 606 requires U.S. registered brokers to publish a “Public Order Routing Report Under Rule 606”. You can find further details in this SEC document at sec.gov.

Does It Make Sense to Use a Direct Access Broker Instead of a Retail Broker

A direct-access broker specializes in providing day traders with high-speed order execution and the full range of order routing options. Traders can send orders directly to the NYSE, Nasdaq or Electronic Communication Networks like ARCA.

Low-latency servers with near-stock exchange locations ensure fast order executions. Direct access brokers require traders to fund their account with a minimum of $30,000 and charge commissions of about $0.005 per share. Higher trading volume may reduce the commissions. Keep in mind that exchanges may charge or pay for placing orders on their exchange network.

Is the Concept of Payment for Order Flow New

The concept of payment for order flow is not new. Since the rise of exchange networks, all stock exchanges and ECN’s try to make their network attractive to traders across the world.

The logic goes like this; if a trader removes liquidity with a market order, he needs to pay a fee. But if he provides liquidity by using a limit order, he may receive a payment if the order gets filled. The fees and payments (so-called liquidity rebates) differ from exchange to exchange.

Some order routing constellations let traders receive higher liquidity rebates than the commissions paid to the broker. Therefore, in certain situations, a direct-access broker can be cheaper and faster than a retail broker.

Would It Be Better to Have One Single Order Routing Option

If all liquidity would go to one exchange, the bid ask spreads should become much tighter. The liquidity would increase, high-frequency algorithms would be stopped from trying to make fractions of a cent by using price differences between ECN’s and exchanges.

However, having only one exchange is equal to having a monopoly, which is usually not a good idea since, without competition, the fee structure might develop in an unfavorable direction for the investor.

Day traders monitor the bid ask spread and use stock order types like limit orders to reduce potential slippage since the order improvement only reflects a potential for a better trade execution but is no guarantee to get better fill prices.

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About the Author

Alexander Voigt is the founder of daytradingz.com. He has over 20 years of experience analyzing and trading the financial markets and has been quoted on leading financial websites such as Business Insider, Investors, Capital and Forbes.