The real ‘Wolf of Wall Street’ has some thoughts about the stock market:
“It’s the most expensive ‘free trade’ you can have,” says Belfort. “I saw a marketing demo from one of the big ‘free trades’ players advertising how they were ‘helping the little guy,’ and they’re hand in hand with the big guys. It was like a betrayal of trust.” He says that market makers pay so much for order flow because it gives them an exclusive window into where the market is moving. When firms see tons of orders coming in for Tesla, they can purchase shares for their own account, pushing up the EV-maker’s prices for their clients when the next flood of orders arrives. “Order flow is everything,” he says. “It tells you where the market is going next. It gives the high-frequency market makers a crystal ball and puts the small investor at a big information disadvantage. Seeing all that order flow gives a market maker information that the public doesn’t have.”..In his example, if the market maker buys XYZ at $50.01 and sells at $50.09, it makes a fat, 8¢ spread. But if the firm “worked the order” by seeking buyers willing to pay a bit more, it could purchase for on behalf of its client at $50.05, and sell at $50.06. The seller gets 4¢ more, the buyer gets 3¢ off, and the trade costs the little guy just 1¢ instead of 8¢. “Traders’ compensation depends on marking up trades and keeping wide spreads,” he says. “You’d have to be Mother Teresa not to fall for that temptation.”
How Robinhood (and the other brokerages that have followed them) Make Money on Trades Despite Taking No Commissions
What is Payment for Order Flow? Investopedia Article
..payment for order flow is a practice pioneered by Bernard Madoff—the same Madoff of Ponzi scheme notoriety.The Securities and Exchange Commission (SEC) said, in a special study on PFOF published in December 2000, “Payment for order flow is a method of transferring some of the trading profits from market making to the brokers that route customer orders to specialists for execution.” Payment for order flow (PFOF) is the compensation a broker receives for routing trades for trade execution.
Payment for Order Flow is banned in the UK
Payment for Order Flow is also not permitted in Canada