The Truth About PFOF in Canada By Shahir Gada - April 10, 2024 By Shahir Gada, Co-founder, PiggyBank Shahir Gada In the world of Canadian financial markets, the concept of Payment for Order Flow (PFOF) has garnered significant attention and generated its fair share of confusion among retail investors. Many individuals and news outlets believe that payment for order flow is banned in Canada, but that is not exactly the case. Recognizing the need for transparency and understanding, personal finance company PiggyBank has set out to unravel the complexities of PFOF in Canada. PiggyBank has reached out to the Investment Industry Regulatory Organization of Canada (IIROC), engaged with Canadian brokers, and meticulously dissected the terms of service of major brokerages to provide clarity to Canadian investors. Is Payment For Order Flow Allowed in Canada? Despite widespread belief that payment for order flow is banned in Canada, PiggyBank’s research reveals a more nuanced reality. According to existing Canadian financial regulations, payment for order flow is prohibited on Canadian listed securities. However, Canadian brokerages are allowed to receive payment for order flow on non-Canadian listed securities, such as US listed securities. This distinction is crucial, considering that many Canadian investors have exposure to US securities in their portfolios. Understanding the scope and implications of payment for order flow regulations is essential for Canadian investors managing cross-border investments. Here’s a summary of Canadian brokers that may engage in payment for order flow on non-Canadian securities: – RBC Direct Investing – CIBC Investor’s Edge – Scotia iTRADE – BMO InvestorLine – TD Direct Investing – Wealthsimple – Questrade – Qtrade National Bank Direct Brokerage and Interactive Brokers (IBKR-Pro offering, which is the only one available in Canada) do not engage in PFOF. What is Payment For Order Flow? Payment for order flow is a practice where brokerages receive compensation for directing their customers’ trades to particular market makers or trading venues. When investors place a trade through their brokerage, the brokerage may route that order to a specific market maker or exchange and receive a fee for doing so. This fee is paid by the market maker or exchange to the brokerage for the order flow. Essentially, payment for order flow involves the brokerage selling their customers’ orders to other parties in the financial market. Impact of Payment for Order Flow on Canadian Investors Understanding the impact of payment for order flow is crucial for Canadian traders as PFOF can have both positive and negative effects. On the positive side, payment for order flow can lead to potentially lower trading costs for investors. Brokerages may pass on some of the revenue earned from PFOF in the form of reduced commissions or fees, which can be advantageous for Canadian traders looking to minimize transaction costs. However, there are also drawbacks to consider, the main one being the potential for conflicts of interest. When brokerages receive payment for directing orders to specific market makers or trading venues, they can prioritize their own financial interests over obtaining the best possible trade execution for their clients. This conflict of interest can potentially impact the overall returns of investors. Many readers are likely already familiar with the GameStop trading saga of early 2021, which brought attention to the practice of payment for order flow. During this time, many investors became aware that American brokerages such as Robinhood were making money by selling customer order flow to market makers. This occurrence triggered discussions about the implications of payment for order flow and the fairness of the financial system and reinforces why retail investors deserve transparency surrounding payment for order flow in Canada. In Summary The payment for order flow landscape in Canada is characterized by nuances often misunderstood by many investors. While PFOF is not permitted on Canadian listed securities under current financial regulations, many Canadian brokerages have the liberty to accept PFOF on non-Canadian listed securities. This distinction underscores the importance of understanding the scope and implications of PFOF regulations, particularly for investors with exposure to cross-border securities. As the debate surrounding PFOF continues, informed decision-making remains paramount for Canadian investors seeking to optimize their investment strategies.
How much difference does this really make to a retail trader? How much difference does it make on a trade of 1000 shares of a 20 dollar stock with a spread of one cent. I can't see any difference on a limit order and depending on the volume moving, will it make that much difference on a market order?
This raises the question of how many securities are a penny wide. Plus, how much is the overall flow worth when I have an expectation of getting both sides? Most MMs who pay get long on down days and vice versa. Why won't most institutions insist on not interacting with payment?
How many are penny wide? U.S. Stock Movers 4:15 PM Coordinated Universal Time 4/10/24 Includes common stocks, ADRs and REITs listed on NYSE, Nasdaq or NYSE American with a prior day close of $2 a share or higher and volume of at least 50,000 VOLUME LAST CHG % CHG Tesla Inc. (TSLA) 84.5M 171.76 -5.12 -2.89 Advanced Micro Devices Inc. (AMD) 59.6M 167.14 -3.64 -2.13 SoFi Technologies Inc. (SOFI) 53.8M 7.56 -0.33 -4.18 Ford Motor Co. (F) 51.4M 13.06 -0.48 -3.55 Intel Corp. (INTC) 51.1M 37.20 -1.13 -2.95 Apple Inc. (AAPL) 49.7M 167.78 -1.89 -1.11 American Airlines Group Inc. (AAL) 49.0M 13.41 -0.54 -3.87 Pfizer Inc. (PFE) 44.5M 26.32 -0.46 -1.72 NVIDIA Corp. (NVDA) 43.2M 870.39 16.85 1.97 AT&T Inc. (T) 39.0M 16.73 -0.17 -1.01 Bank of America Corp. (BAC) 37.6M 36.65 -1.08 -2.86 Warner Bros. Discovery Inc. Series A (WBD) 36.5M 8.32 -0.37 -4.26 Amazon.com Inc. (AMZN) 35.9M 185.95 0.28 0.15 Paramount Global Cl B (PARA) 35.1M 10.50 -0.47 -4.28 Delta Air Lines Inc. (DAL) 35.0M 46.24 -1.08 -2.28 Tilray Brands Inc. (TLRY) 34.9M 2.02 -0.04 -1.70 New York Community Bancorp Inc. (NYCB) 34.9M 2.96 -0.26 -8.07 Marathon Digital Holdings Inc. (MARA) 34.6M 17.38 -0.60 -3.34 SoundHound AI Inc. (SOUN) 34.2M 4.51 -0.34 -7.01 Carnival Corp. (CCL) 33.2M 14.95 -0.55 -3.55 NIO Inc. ADR (NIO) 32.6M 4.59 -0.12 -2.55 Barrick Gold Corp. (GOLD) 31.3M 17.90 -0.11 -0.61 Rivian Automotive Inc. Cl A (RIVN) 30.3M 10.27 -0.36 -3.39 Sirius XM Holdings Inc. (SIRI) 29.5M 3.34 -0.11 -3.19 Vale S.A. ADR (VALE) 28.9M 12.15 -0.35 -2.80 Palantir Technologies Inc. (PLTR) 28.6M 22.42 -0.39 -1.71 Huntington Bancshares Inc. (HBAN) 25.1M 13.58 -0.46 -3.28 Walgreens Boots Alliance Inc. (WBA) 24.4M 18.02 -1.16 -6.05 Plug Power Inc. (PLUG) 24.3M 3.07 -0.18 -5.54 Alphabet Inc. Cl A (GOOGL) 22.8M 156.14 -0.46 -0.29 Barclays PLC ADR (BCS) 22.6M 9.59 -0.14 -1.44 Petroleo Brasileiro S/A ADR (PBR) 22.6M 16.16 0.28 1.76 AGNC Investment Corp. (AGNC) 22.4M 9.32 -0.46 -4.70 Comcast Corp. Cl A (CMCSA) 22.4M 39.72 -0.43 -1.07 Micron Technology Inc. (MU) 22.2M 122.20 -0.43 -0.35 CleanSpark Inc. (CLSK) 22.2M 15.05 -0.28 -1.83 Itau Unibanco Holding S/A ADR (ITUB) 21.6M 6.46 -0.28 -4.15 Eco Wave Power Global AB ADR (WAVE) 21.6M 3.66 0.65 21.59 Telefon AB L.M. Ericsson ADR (ERIC) 21.2M 5.09 -0.13 -2.49 Opendoor Technologies Inc. (OPEN) 21.1M 2.45 -0.29 -10.58 Snap Inc. (SNAP) 20.7M 10.88 -0.35 -3.12 Infobird Co. Ltd. (IFBD) 20.6M 5.45 1.32 31.96 Alibaba Group Holding Ltd. ADR (BABA) 20.6M 74.59 1.60 2.19 Cisco Systems Inc. (CSCO) 20.0M 49.21 -0.80 -1.60 Grab Holdings Ltd. (GRAB) 19.8M 3.33 0.04 1.22 Nu Holdings Ltd. Cl A (NU) 19.7M 11.57 -0.25 -2.12 Medical Properties Trust Inc. (MPW) 19.0M 4.11 -0.17 -3.97 Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM) 18.9M 146.22 0.82 0.56 Lucid Group Inc. (LCID) 18.5M 2.65 -0.05 -1.85 Mediaco Holding Inc. (MDIA) 18.3M 4.17 -0.12 -2.80 Nokia Corp. ADR (NOK) 18.2M 3.42 -0.08 -2.29 Citigroup Inc. (C) 18.1M 60.18 -1.48 -2.40 Verizon Communications Inc. (VZ) 17.9M 40.52 -0.32 -0.78 Transocean Ltd. (RIG) 17.9M 6.43 0.05 0.78 Exxon Mobil Corp. (XOM) 17.4M 122.20 1.02 0.84 Kinross Gold Corp. (KGC) 17.1M 6.38 -0.08 -1.24 B2Gold Corp. (BTG) 17.0M 2.84 -0.08 -2.74 Wells Fargo & Co. (WFC) 16.5M 56.94 -0.64 -1.11 Aurora Cannabis Inc. (ACB) 16.4M 6.76 0.41 6.37 Alphabet Inc. Cl C (GOOG) 16.3M 157.66 -0.48 -0.30 AMC Entertainment Holdings Inc. Cl A (AMC) 16.3M 2.83 -0.14 -4.71 Hewlett Packard Enterprise Co. (HPE) 16.2M 18.00 -0.02 -0.11 Microsoft Corp. (MSFT) 16.2M 423.26 -3.02 -0.71 Freeport-McMoRan Inc. (FCX) 16.1M 50.92 -0.38 -0.74 Riot Platforms Inc. (RIOT) 15.5M 9.87 -0.13 -1.30 KeyCorp (KEY) 15.2M 14.84 -0.69 -4.44 Denison Mines Corp. (DNN) 15.1M 2.12 0.07 3.41 Baytex Energy Corp. (BTE) 15.1M 3.91 0.13 3.44 Walmart Inc. (WMT) 15.1M 60.62 0.83 1.39 SunRun Inc. (RUN) 14.8M 12.29 -0.73 -5.61 Peloton Interactive Inc. (PTON) 14.8M 3.65 -0.30 -7.59 Southwestern Energy Co. (SWN) 14.5M 7.52 -0.01 -0.13 Truist Financial Corp. (TFC) 14.3M 37.50 -1.47 -3.77 BP PLC ADR (BP) 14.0M 39.42 0.13 0.33 Marvell Technology Inc. (MRVL) 13.9M 71.43 -1.91 -2.60 Banco Bradesco S/A Pref ADR (BBD) 13.9M 2.84 -0.09 -3.07 First Majestic Silver Corp. (AG) 13.9M 7.91 -0.16 -1.98 United Airlines Holdings Inc. (UAL) 13.8M 42.37 -1.07 -2.46 CSX Corp. (CSX) 13.7M 35.41 -0.54 -1.50 Lloyds Banking Group PLC ADR (LYG) 13.3M 2.63 -0.02 -0.75 QuantumScape Corp. Cl A (QS) 13.0M 5.94 -0.33 -5.26 Geron Corp. (GERN) 12.9M 3.44 0.01 0.29 XPeng Inc. ADR (XPEV) 12.7M 8.15 0.08 0.99 Newmont Corp. (NEM) 12.6M 39.06 -0.61 -1.54 Uber Technologies Inc. (UBER) 12.5M 74.35 -0.79 -1.05 Coupang Inc. (CPNG) 12.3M 19.12 0.10 0.53 Alpine Immune Sciences Inc. (ALPN) 12.2M 47.04 8.10 20.80 Coeur Mining Inc. (CDE) 11.9M 4.72 -0.21 -4.26 Coca-Cola Co. (KO) 11.9M 58.92 -0.80 -1.34 Canopy Growth Corp. (CGC) 11.8M 9.12 -0.04 -0.44 Kenvue Inc. (KVUE) 11.8M 20.24 -0.11 -0.54 Energy Transfer LP (ET) 11.7M 15.78 0.06 0.38 General Motors Co. (GM) 11.6M 43.94 -0.79 -1.77 Infosys Ltd. ADR (INFY) 11.6M 18.00 -0.19 -1.04 Bristol Myers Squibb Co. (BMY) 11.5M 50.29 -1.31 -2.54 Meta Platforms Inc. (META) 11.4M 519.83 2.93 0.57 Norwegian Cruise Line Holdings Ltd. (NCLH) 11.4M 18.40 -1.01 -5.20 IAMGOLD Corp. (IAG) 11.4M 3.62 -0.04 -1.09 Aurora Innovation Inc. (AUR) 11.0M 3.05 -0.20 -6.15 VF Corp. (VFC)
ETF Movers 4:15 PM Coordinated Universal Time 4/10/24 LAST CHANGE %CHG VOLUME ProShares UltraPro Short QQQ 10.90 0.29 2.73 178.9M Direxion Daily Semiconductor Bear 3X Shares 3.43 0.16 4.89 174.5M ProShares UltraPro QQQ 58.93 -1.59 -2.63 101.0M SPDR S&P 500 ETF Trust 514.12 -5.20 -1.00 82.7M iShares iBoxx $ High Yield Corporate Bond ETF 76.48 -0.68 -0.88 76.6M Direxion Daily Semiconductor Bull 3X Shares 43.09 -2.30 -5.07 74.9M iShares 20+ Year Treasury Bond ETF 90.22 -2.01 -2.18 74.4M Invesco QQQ Trust Series I 438.37 -3.86 -0.87 61.5M Financial Select Sector SPDR ETF 40.89 -0.62 -1.49 59.5M iShares Russell 2000 ETF 200.93 -5.45 -2.64 57.1M ProShares Ultra VIX Short-Term Futures ETF 6.89 0.17 2.53 53.5M iShares Silver Trust 25.45 -0.27 -1.05 50.6M Direxion Daily S&P 500 Bear 3X Shares 9.23 0.28 3.13 50.3M iShares iBoxx $ Investment Grade Corporate Bond ETF 106.04 -1.53 -1.42 45.4M Direxion Daily Small Cap Bear 3x Shares 19.23 1.43 8.03 40.1M iShares Bitcoin Trust 40.00 0.67 1.70 38.9M ProShares Short S&P 500 12.09 0.11 0.92 37.9M iShares MSCI Emerging Markets ETF 41.23 -0.57 -1.36 37.3M iShares China Large-Cap ETF 24.47 -0.12 -0.49 36.9M iPath Series B S&P 500 VIX Short-Term Futures ETN 13.86 0.26 1.91 36.2M iShares MSCI Brazil ETF 32.08 -0.91 -2.76 33.9M VanEck Gold Miners ETF 33.68 -0.50 -1.46 33.1M Direxion Daily Small Cap Bull 3x Shares 37.12 -3.22 -7.98 32.3M Direxion Daily TSLA Bull 2X Shares 7.67 -0.48 -5.89 30.5M SPDR S&P Regional Banking ETF
We keep hearing about the evils of PFOF but what is the affect on the individual retail trader. If I put in a limit order I get filled at my price or less. If I put in a market order I get filled at the market price. My experience has been somewhere between the bid and the ask. If you are day trading in Canada you should probably be using IB or NBD
Not sure what you mean by execution quality. I'm looking at level 2, I enter a market order and get filled at or below the ask immediately. I would assume my execution quality is good. If my broker is being paid for order flow I don't seem to be affected.