Payment for order flow has been around on Wall Street for a long time. Bernie Madoff was one of the pioneers of this practice. His firm, Madoff Securities, was known as the third market. They would pay other brokers a penny per share for market orders and then trade in between the NYSE specialist spread. Madoff was able to trade around 10% of volume with this arrangement and was able to make a lot of money.
Most online brokers today sell their market orders to “internalizers” who pay a fraction of
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