Public.com Scraps Controversial Payment for Order Flow Model

Zero-fee brokerage, Public.com announced on Monday that it would no longer route orders to Market Makers Market Makers Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Read this Term, instead will send them directly to exchanges for trade Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term.

Payment for Order Flow or PFOF is the model by which the brokerages send the orders to wholesale market players for a price who get the first shot in execution. These players execute the orders internally in off-exchange trading venues or send them to exchange.

The PFOF business model was popularized with the rise of the commission-free model among the brokers. However, the technique remained controversial due to the possibility of a conflict of interest.

Popularized by Robinhood with its zero-fee offering, many brokerages have now turned to PFOF to go commission-free and monetize their business. Earlier, Robinhood paid a fine of $65 million for misleading customers with their order execution.

'There Is No Such Thing as Free Trades'

Public.com pointed out that traders do not approach these platforms because of zero trading fees, ‘but rather because of a lack of financial literacy.’

“The reality is that there is no such thing as free trades,” Public.com stated in its Medium post.

Public.com will now feature a tipping option by the traders, which will be optional. It is to be seen if the broker can sustain this monetization model or will return PFOF or start charging fees.

“Trades will remain commission-free and tipping is entirely optional,” the brokerage noted. “Members of the Public.com community can freely decide if they’d like to leave a tip to help pay for the cost of executing their trades.”

“Direct routing to the exchanges is more expensive, and therefore we’re turning what used to be a revenue stream (PFOF) into a cost center and we’re optimistic that the difference will be offset by the optional tipping feature.”

The decision came when there is chaos going on in the trading market. The coordinated pump of certain stocks by amateur traders has clogged many brokerages due to the high trading volume.