Is this all zero commission brokers (including Schwab), or just the smaller ones? I've heard robinhood does this.
What if I place a market order, wouldn't I automatically get filled at the current bid/offer price? Or how exactly does selling orderflow affect the price I'd be getting?
"Brokers like Schwab and other companies also make money from payment for order flow. The way it works is that professional trading firms buy the retail-investor orders from the broker and execute the trades for them. These trading outfits typically make money from the gap between the bid and the offer. When the trading company buys order flow, they give some of that money (the rebate) to the brokerage that provided the orders."
"A market maker that buys retail flow takes on less risk and should be able offer better prices as a result. By going off exchange, market makers can also avoid having to compete with other sophisticated traders. But some, like former SEC chairwoman Mary Jo White
in a 2014 speech, think paying for order flow could create conflicts of interest. A broker may be tempted to send trades to the market maker that offers it the best rebates, instead of the best stock trade execution for the customer, the thinking goes."
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It's all a bit of a grey area in my opinion, you don't know if you would have been better of to execute your trade without your order flow was being sold but you also don't know if you are really getting a good deal by not having to pay commission.
I prefer to stick with knowing what i am getting/paying. I am also from Europe and i don't think there are brokerages offering zero commission in the EU for now, but i wouldn't want it anyway. For the reason mentioned before and also because most of the platforms they offer along with zero commission have restrictions compared to their full versions.
I am not saying it is bad for everyone, if you are swing trading or buying and holding costs aren't as important as when you are doing short term trades, so if you are doing that and don't need all the bells and whistles from a platform, go for it. However if you are scalping every cent can make the difference, if you are executed 1 or 2 cent worse because of the order flow being sold you are losing more than you would have paid on commission.
The major downside in my opinion is that you just don't know what is happening, do i get a better deal or not by not paying commission? I don't know. I prefer to know so that i can find a solution for my problem if i need to, how are you going to improve on something you don't know anything about? I do know my commission rate so i can work with that.
