Why Your "Free" Broker Isn't Free

In 2024, U.S. retail brokers earned over $8 billion selling customer order flow to market makers—while telling you execution is free. Robinhood alone made $1.4 billion from PFOF. That money doesn't materialize from thin air. It comes from the other side of your trades.

When you place an order to buy 100 shares of Tesla, your broker doesn't send it to an exchange. It routes it to a market maker—usually Citadel Securities, Virtu, or G1 Execution Services. The market maker pays the broker for the privilege of filling your order, then profits by getting a better price than they offer you.

You think you got the "market price." You got worse than the market price. That's the fee.

The Math: 1-3 Basis Points Per Trade

A basis point (bp) is 1/100th of a percent. When you buy 100 shares of a $150 stock, 1 basis point = $1.50. Most PFOF costs are 1-3 bps per trade.

The SEC's guidance on best execution and PFOF confirms this structure is legal. That doesn't make it good for you.

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How Alorny turns a trading idea into a live, automated system.

Why Brokers Do This (And Why It Matters)

Brokers pitch PFOF as a feature: "We offer zero-commission trading because market makers pay us." It's technically true. It's also incomplete.

A real zero-commission broker would pass the market maker's payment to you (rebates on executions). Instead, brokers pocket the spread between what the market maker pays them and what they pass to you. The difference—typically 1-3 bps—is pure profit for the broker.

Here's the thing: your broker's incentive is not aligned with your profit. They make money every time you trade, regardless of whether that trade is profitable. A broker earning 2 bps on every order has zero incentive to route your order to the best available price—they have incentive to route to whoever pays them the most.

Your broker profits when you lose. That's not a conspiracy. That's the business model.

How Market Makers Extract Value From PFOF

Market makers pay brokers for order flow because they can profit from it. They have technology retail traders don't. They see order flow from thousands of brokers, giving them intelligence about market movement milliseconds before retail even realizes a trade is about to happen.

When you place a market order to buy at 10:30 AM, that order is telegraphed to market makers before it hits an exchange. The market maker sees the buy flow, anticipates more buyers are coming, and sells to you at a price 1-3 bps worse than the exchange price. They then flip the same shares to another buyer at a profit.

This happens in microseconds. Your 2-second delay between deciding to buy and seeing your fill is an eternity in market maker time. That gap is where your money goes.

Real Impact on Your Account

Let's model a realistic day trader: $10,000 starting capital, 10 trades per day, $100 average position size, 2 bps PFOF cost (typical for retail brokers).

On a $10k account, that's 0.5% per year. If you're aiming for a 10% annual return, you need to generate 10.5% just to net 10%. PFOF ate half a percent without you realizing.

Scale to a $100,000 account trading 50 times per month at 2 bps:

That's a meaningful drag on returns, especially in low-volatility years where edge is razor-thin. Over 10 years, that's $1,200 in pure slippage drag—not from losing trades, but from the structure itself.

What the Regulation Actually Does (Spoiler: Nothing for You)

The SEC requires brokers to disclose PFOF in fine print. Robinhood mentions it. Most traders never read it. Even when disclosed, most underestimate the impact because 2 bps sounds like nothing.

The rule is called "best execution." Brokers must provide the "best available price" to you. But best available price is measured against other brokers' prices—not against the actual market price. If all retail brokers receive PFOF and all route through market makers, they can collectively offer worse execution than exchange prices, and the SEC considers that compliant.

Regulation solved nothing. It just formalized the transfer of money from retail traders to brokers and market makers.

Three Paths Forward

You can't eliminate PFOF if you stay at a traditional retail broker. But you have choices:

  1. Stay at your current broker: Accept 1-3 bps drag on every trade forever. It compounds.
  2. Move to a wholesaler broker: Interactive Brokers, Ninja Trader, or TradeStation charge small commissions (0.25-1 bp) instead of PFOF. You still pay, but it's transparent and lower.
  3. Automate execution: Instead of fighting PFOF on 10 manual trades, run a custom bot that executes 50-100 trades per day. The volume and precision compound faster than the cost structure destroys.

Most traders pick option 1. The traders beating the system pick option 3.

When you automate with a custom EA built by Alorny, you're not just eliminating PFOF drag—you're trading 10-100x more frequently with 100x more precision. That volume dwarf any per-trade cost. A bot that executes 50 trades per day instead of your 5 manual trades doesn't care about 2 bps—it compounds returns from frequency and edge instead.

A coded edge compounds while you sleepTime in market →Consistency
Illustrative: automated rules execute consistently, with no emotion gap.

Key Takeaways