Fidelity does use payment for order flow, but not for all of your trades
Fidelity receives payment for order flow (PFOF) on most stock and options trades you place through their brokerage. This means when you buy or sell, Fidelity routes your order to a market maker or trading firm that pays Fidelity for the right to fill it. You do not pay this fee directly — it happens behind the scenes — but it affects the price you receive.
The key detail: Fidelity does not use PFOF for trades in mutual funds, bonds, or most exchange-traded funds (ETFs). For stocks and options, PFOF is standard practice across nearly all retail brokers, including Fidelity, Charles Schwab, E*TRADE, and others. The amount Fidelity receives varies by order type and market conditions, and Fidelity is required to disclose these payments to the Securities and Exchange Commission (SEC) quarterly.
Key Takeaways
- Fidelity receives payment for order flow on stock and options trades, meaning a market maker pays to fill your order instead of routing it to an exchange.
- You do not see a separate fee, but PFOF can result in a slightly worse price than you might receive on a public exchange.
- Fidelity does not use PFOF for mutual funds, bonds, or most ETFs, which are typically routed to exchanges or filled at net asset value.
- Fidelity publishes its PFOF payments to the SEC each quarter, and you can request this data if you want to see how much they received from your trades.
How payment for order flow works at Fidelity
When you place a stock or options trade at Fidelity, your order goes to a market maker — a firm that stands ready to buy or sell at any moment. That market maker pays Fidelity a small amount per share (typically a fraction of a cent) for the opportunity to fill your order. Fidelity keeps this payment; you do not receive it, and it does not reduce your commission.
The trade-off is price. A market maker profits by buying slightly below the market price and selling slightly above it — the difference is called the spread. Because the market maker has paid for your order, they have an incentive to fill it quickly, which can mean offering you a price that is slightly worse than what you might find on a public exchange at that exact moment. For small trades, this difference is usually tiny — a penny or two per share. For large trades, it can add up.
Fidelity argues that PFOF allows them to offer commission-free trading. Without PFOF revenue, they would need to charge you per trade or charge higher account fees. This is a real trade-off: you pay nothing per trade, but you may pay a small amount in price.
Which Fidelity trades use PFOF and which do not
PFOF applies to stocks and options at Fidelity. It does not explore to mutual funds, bonds, or most ETFs. Here is the breakdown:
| Product Type | Uses PFOF | How It Works |
|---|---|---|
| Stocks | Yes | Routed to market makers who pay Fidelity |
| Options | Yes | Routed to market makers who pay Fidelity |
| Mutual funds | No | Filled at net asset value (NAV), no PFOF |
| Bonds | No | Routed to exchanges or dealers, no PFOF |
| Most ETFs | No | Traded on exchanges like stocks, but Fidelity does not receive PFOF |
The reason mutual funds and bonds do not use PFOF is structural. Mutual funds are priced once per day at the close of trading, so there is no moment-to-moment price negotiation. Bonds are typically traded between dealers and institutions, not through market makers in the same way stocks are.
What Fidelity discloses about their PFOF payments
The SEC requires all brokers to report how much they receive from PFOF each quarter. Fidelity publishes this information on their website in a document called their SEC Rule 606 disclosure. This report shows the average price improvement (or price degradation) you received on your trades, broken down by order type and venue.
You can request Fidelity's PFOF data directly from them if you want to see the specific amounts they received. This is not information most people need, but it is available if you are curious about the scale of the payments. Fidelity also publishes aggregate data showing which market makers they route orders to most frequently.
The SEC disclosure is meant to show whether PFOF is actually helping or hurting you. In theory, if a market maker is paying for your order, they should give you a price at least as good as the public exchange price. In practice, this varies — sometimes you get a better price, sometimes slightly worse, and the difference is usually small.
How PFOF compares to other brokers
Fidelity is not unique in using PFOF. Nearly every major retail broker — Charles Schwab, E*TRADE, TD Ameritrade, Robinhood, Webull — uses it for stocks and options. The practice is legal and regulated by the SEC, though it remains controversial among investors who believe it creates a conflict of interest.
Some brokers market themselves as PFOF-free, but this usually means they route orders to exchanges instead and charge you a commission per trade. Interactive Brokers, for example, offers commission-free trading without PFOF, but they charge a monthly subscription fee if your account is under a certain size. The math often works out similarly: you either pay through PFOF, through commissions, or through account fees.
If PFOF concerns you, the practical difference at Fidelity is usually small for typical trades. The bigger factor in your trading costs is usually the bid-ask spread (the difference between what buyers will pay and what sellers want), which exists regardless of PFOF.
What this means for your trading at Fidelity
For most people, PFOF at Fidelity is a minor factor in the cost of trading. If you are buying 100 shares of a stock, the price difference from PFOF is likely to be a few cents total. If you are trading options or larger quantities, the impact may be more noticeable.
If you want to minimize PFOF's effect, you can request that Fidelity route your orders to a specific exchange instead of to a market maker. This is called directed order routing, and Fidelity allows it. You would need to contact Fidelity to set this up, and it may result in slightly wider spreads because you are not getting the benefit of market maker competition.
For most traders, the commission-free trading that PFOF enables is worth the small price impact. If you are a high-volume trader or very price-sensitive, you may want to compare Fidelity's execution quality to other brokers or explore commission-based alternatives.
Frequently Asked Questions
Does Fidelity tell me when they receive PFOF on my trades?
No, Fidelity does not notify you for individual trades. They disclose PFOF payments to the SEC quarterly in aggregate form. If you want to know how much Fidelity received from your specific orders, you can request their SEC Rule 606 disclosure or contact Fidelity directly.
Can I opt out of PFOF at Fidelity?
You cannot opt out entirely, but you can request directed order routing to a specific exchange. This means your order goes to a public exchange instead of a market maker. Fidelity allows this, though it may result in wider spreads and slower execution.
Does PFOF mean I am getting a worse price?
Not necessarily. Market makers are required to give you a price at least as good as the public exchange price at the moment they receive your order. Sometimes you get a better price, sometimes the same price. The difference is usually small — a penny or two per share for stocks.
Why do brokers use PFOF if it is controversial?
PFOF allows brokers to offer commission-free trading. Without this revenue, they would charge you per trade or per account. The SEC permits PFOF as long as brokers execute trades at prices no worse than the public exchange price.
Is PFOF the same at Fidelity as at other brokers?
The practice is the same, but the amounts vary. Fidelity, Schwab, and E*TRADE all use PFOF for stocks and options. The specific market makers they route to and the prices they receive differ slightly, but the overall impact on your trading costs is usually similar across major brokers.