What is Payment for Order Flow (PFOF), and how does it work?
Key takeaways
PFOF is a standard type of compensation received by brokerages, typically in the fractions of a cent per order.
PFOF is one of the many ways Questrade is able to offset the costs we incur to deliver you a best-in-class trading experience. This also allows us to offer you features such as $0 commission trading and reduced exchange fees.
Questrade has a best execution obligation under Canadian securities law. We must seek the best possible outcome for your trade - independent of how much compensation we may receive.
PFOF can sometimes result in price improvement, allowing your order to be filled at a better price than the best publicly quoted price at the time.
Key takeaways
PFOF is a standard type of compensation received by brokerages, typically in the fractions of a cent per order.
PFOF is one of the many ways Questrade is able to offset the costs we incur to deliver you a best-in-class trading experience. This also allows us to offer you features such as $0 commission trading and reduced exchange fees.
Questrade has a best execution obligation under Canadian securities law. We must seek the best possible outcome for your trade - independent of how much compensation we may receive.
PFOF can sometimes result in price improvement, allowing your order to be filled at a better price than the best publicly quoted price at the time.
What is PFOF (payment for order flow)?
Payment for order flow (PFOF) is compensation, often a fraction of a penny per share, that a brokerage may receive for directing client orders to a market maker. It's one of the mechanisms that has helped make zero-commission trading an industry norm across North America.
A market maker is a firm that provides liquidity to financial markets by standing ready to buy and sell securities. By quoting both a buy and a sell price, market makers help reduce volatility and improve execution quality. Questrade may receive PFOF from a market maker, typically in the fractions of a cent per order.
PFOF isn't unique to any one brokerage. It's a common revenue arrangement used across the industry, particularly for US equities and options trading. We do not receive PFOF for orders placed for Canadian securities or interlisted securities.
What are the benefits of PFOF?
Lower trading costs. PFOF helps Questrade offset the costs we incur to deliver you a best-in-class trading experience, which in turn allows us to offer you $0 commission trading and reduced exchange fees.
Price improvement. When a market maker fills your order internally, it may execute at a price better than the best available public quote at that moment — a small but real benefit that can add up across many trades.
How it works on Questrade
Here's a simplified look at what happens behind the scenes after you hit "buy" or "sell":
Your order is sent to an executing broker: Questrade routes client orders to external executing brokers responsible for getting the trade filled.
The executing broker fills the trade: If the executing broker acts as a market maker, they may fill the order directly from their own inventory rather than routing it to a public exchange.
You can receive price improvement: When a market maker fills an order from its inventory, it may execute the trade at a better price than what is publicly quoted at the time. This price improvement can add up to savings for you over time.
Questrade may receive compensation (PFOF): The executing broker may pay Questrade a small fee for routing order flow to them.
How PFOF affects your trades
PFOF has no impact on your trading experience. You still:
Place trades the same way, using the same order types (market, limit, stop, etc.)
Trade with full access to liquidity during regular trading hours
Benefit from a brokerage's best execution obligation under Canadian securities law
Payment for order flow (PFOF) is fundamentally a routing mechanism for order execution; it remains separate from the regulatory obligations that ensure the quality of that execution.
