[ralph84]

Say the national best bid and offer (NBBO) is: Bid: $10.45 Ask: $10.55

You place a limit buy order at $10.55 for 100 shares.

$0 commission broker that sells order flow: Your order is routed to the market maker buying your broker's order flow. They sell you the 100 shares for $10.55 since it's within your limit and within the NBBO spread.

$5 commission broker: Your broker attempts to price improve by searching multiple liquidity sources and gets a hit at the NBBO midpoint: $10.50.

In both cases you paid $5 for the trade.

[kasey_junk]

This is not at all how NBBO works. Effectively all retail brokers sell order flow and if they dont they still dont have any obligation to improve your price beyond NBBO.

[ralph84]

> This is not at all how NBBO works

Open to corrections

> they still dont have any obligation to improve your price beyond NBBO

But those that do price improvement use it as a marketing differentiator:

https://www.fidelity.com/learning-center/tools-demos/trading...

https://investor.vanguard.com/investing/online-trading/order...

https://www.schwab.com/execution-quality

https://www.tdameritrade.com/tools-and-platforms/order-execu...

https://www1.interactivebrokers.com/en/index.php?f=47202#bes...

[kasey_junk]

Schwab, Fidelity, TD Ameritrade & IB all engage in PFOF. They all have free offerings.

Here is what robinhood advertises for their price improvement https://robinhood.com/us/en/about-us/our-execution-quality/

All NBBO improvement requires is that if you send an order through the book you’ll get the best price on NBBO. Even when Robinhood got fined it wasn’t for that, it was for promising better than their competitors and then putting it in writing that they were happy being worse than their competitors.

[pgwhalen]

> Open to corrections

Under the "Robinhood" header of this Matt Levine column is a pretty good explanation of payment for order flow:

https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...