Fidelity does use payment for order flow, but not in the way that harms most of its customers

Yes, Fidelity receives payment for order flow (PFOF) from market makers and other trading venues when you place a stock or options trade. When you buy 100 shares of Apple through Fidelity, the firm doesn't execute that trade on the New York Stock Exchange by default. Instead, it routes your order to a third party—often a market maker like Citadel Securities or Virtu Financial—who fills it and pays Fidelity a small amount per share for the privilege of handling your order.

The reason this matters is that PFOF creates a potential conflict of interest: the firm receiving your order has an incentive to fill it at a price slightly worse than the best available price, pocketing the difference. However, Fidelity's structure and rules mean this conflict is smaller than it is at many other brokers, and in some cases doesn't explore to you at all.

Key Takeaways

  • Fidelity receives payment for order flow on most stock and options trades, but this does not automatically mean you pay more than you would elsewhere.
  • Fidelity is required by law to route your order to the venue that offers the best price at the moment of execution, regardless of which venue pays them the most.
  • If you hold at least $25,000 in your Fidelity account, you can route your own orders directly to exchanges and avoid PFOF entirely.
  • Fidelity's own market-making subsidiary, Fidelity Capital Markets, handles a portion of retail order flow and does not pay Fidelity for those orders.

How Fidelity's order routing actually works

When you place a trade at Fidelity, the firm has a legal obligation under SEC Regulation SHO and Rule 10b-5 to route your order to whichever venue will give you the best execution—meaning the lowest price for a buy order, the highest price for a sell order. This obligation exists regardless of how much money a market maker offers to pay for your order.

In practice, Fidelity routes most retail stock orders to one of a handful of market makers: Citadel Securities, Virtu Financial, Two Sigma Securities, or its own subsidiary Fidelity Capital Markets. These firms pay Fidelity between $0.001 and $0.003 per share. On a 100-share trade, that's $0.10 to $0.30 total—not enough to move the needle on your cost, but enough to matter to Fidelity's bottom line across millions of trades.

The key protection is that Fidelity must demonstrate it routed your order to the venue offering the best price at that moment. If Citadel is offering a worse price than the NYSE, Fidelity cannot route to Citadel just because Citadel pays more. The SEC enforces this through regular audits and fines firms that violate it.

When PFOF does not explore to your trades

If you have at least $25,000 in your Fidelity account and you want to avoid PFOF entirely, you can use Fidelity's direct routing feature to send your order straight to an exchange like the NYSE, NASDAQ, or CBOE. This costs you nothing extra—Fidelity does not charge a commission—but your order will not be routed through a market maker, so Fidelity receives no payment for it.

You can set up direct routing in Fidelity's Active Trader Pro platform or through the web interface by selecting your preferred exchange at the time you place the order. This is most useful if you trade frequently or if you are concerned about the execution quality you are receiving from Fidelity's default routing.

Additionally, if you trade mutual funds or ETFs through Fidelity, PFOF does not explore. Fidelity does not receive payment for order flow on those products because they are not routed to market makers in the same way individual stocks are.

The difference between Fidelity and brokers with worse PFOF practices

Not all brokers handle PFOF the same way. Some firms—particularly zero-commission brokers like Robinhood—rely heavily on PFOF revenue to offset the cost of offering free trading. Robinhood sends the vast majority of its retail order flow to a small number of market makers and has faced SEC fines for not obtaining best execution on a consistent basis.

Fidelity, by contrast, is a large broker with its own market-making operation and does not depend on PFOF revenue to stay profitable. The firm also routes order flow to multiple venues, which creates competition and reduces the likelihood that any single market maker can consistently offer worse prices. Additionally, Fidelity publishes quarterly order routing reports that show where it sends orders and how often each venue receives them—transparency that allows customers and regulators to monitor whether best execution is actually happening.

This does not mean Fidelity is perfect or that PFOF is harmless. It means that the structural incentives at Fidelity are weaker than they are at some competitors, and that Fidelity has more to lose from a reputation or regulatory standpoint if it cuts corners on execution quality.

What the SEC requires Fidelity to disclose about PFOF

Fidelity is required to tell you that it receives payment for order flow. You will see this disclosure in your account documents and in Fidelity's Form ADV Part 2A, which is the firm's official disclosure document filed with the SEC. The disclosure explains that Fidelity routes orders to market makers, that it receives compensation for doing so, and that this creates a potential conflict of interest.

Fidelity is also required to disclose the specific amounts it receives per share, broken down by asset class and venue. These disclosures are public and available on the SEC's website. If you want to see exactly how much Fidelity is being paid for your order flow, you can request Fidelity's most recent quarterly order routing report, which breaks down execution quality by venue.

How to minimize the impact of PFOF on your trading costs

If you are concerned about PFOF, you have several options. The simplest is to use limit orders instead of market orders. A limit order tells Fidelity to buy at a specific price or lower, or sell at a specific price or higher. This caps your cost regardless of where the order is routed, because the market maker cannot fill your order at a worse price than your limit without violating the terms of the order.

You can also trade during the most liquid times of day—typically the first hour after the market opens and the last hour before it closes. During these windows, the spread between the bid and ask prices is tighter, which means there is less room for a market maker to profit at your expense.

Finally, if you trade frequently or in large size, consider using Fidelity's direct routing feature or contacting Fidelity's institutional trading desk to discuss alternative execution arrangements. Fidelity offers different routing options for different customer types, and if you are a serious trader, the firm may be willing to negotiate terms that reduce or eliminate PFOF.

Frequently Asked Questions

Does Fidelity make more money when I lose money on a trade?

No. Fidelity's PFOF revenue is fixed per share, regardless of whether your trade makes or loses money. Fidelity receives the same $0.001 to $0.003 per share whether the stock goes up or down after you buy it. Fidelity's incentive is to execute your order at the best available price, not to set you up for losses.

Is PFOF the same as a hidden commission?

PFOF is not a commission you pay directly, but it can result in a slightly worse execution price than you would receive if your order were routed to an exchange instead. The difference is usually measured in pennies per share. Whether this amounts to a "hidden" cost depends on whether Fidelity is actually obtaining best execution—which the SEC requires and monitors.

Can I opt out of PFOF at Fidelity?

Yes, if you have at least $25,000 in your account, you can use Fidelity's direct routing feature to send orders to exchanges instead of market makers. This eliminates PFOF but does not change your commission (which is zero) or your ability to trade. You can set this up in Active Trader Pro or through the web platform.

Why do market makers pay for order flow if they are not making money on it?

Market makers profit by buying at the bid price and selling at the ask price—the spread between the two. They are willing to pay Fidelity for order flow because they expect to capture that spread on millions of trades. The payment to Fidelity is a cost of doing business, not a sign that they are losing money on individual trades.

Does Fidelity's own market maker handle my orders?

Sometimes. Fidelity Capital Markets, Fidelity's in-house market maker, handles a portion of retail order flow. When it does, Fidelity does not pay itself for the order—there is no PFOF transaction. However, Fidelity Capital Markets still profits from the bid-ask spread, just like any other market maker, so the incentive structure is similar.