Yes, Fidelity uses payment for order flow, and it affects where your stock and options trades are executed

Fidelity receives payment for order flow (PFOF) from market makers and trading venues when you place a trade through their platform. This means Fidelity routes your order to a third party—usually a market maker like Citadel Securities or Virtu Financial—and that third party pays Fidelity for the right to fill your order. Fidelity does not charge you a commission on these trades, but PFOF is how they make money on your transactions instead.

The practice is legal and disclosed in Fidelity's documents, but it creates a potential conflict of interest: Fidelity has a financial incentive to route your order to whichever venue pays them the most, not necessarily the venue that gives you the best price. The difference between what you pay and what the market maker pays Fidelity can be small—fractions of a cent per share—but it adds up across millions of trades.

Key Takeaways

  • Fidelity receives payment from market makers every time you trade stocks or options, which is how they offer commission-free trading.
  • Your order is routed to the highest bidder among market makers, not necessarily to the venue with the best price for you.
  • Fidelity discloses PFOF in their order routing documents and regulatory filings, which you can request or view on their website.
  • You can request that Fidelity route your order to a specific exchange instead of a market maker, though this is rarely done by retail traders.
  • The price difference from PFOF is usually small per trade but can matter on large orders or frequent trading.

How Fidelity's order routing works

When you place a stock or options order on Fidelity, your order does not automatically go to the New York Stock Exchange or NASDAQ. Instead, Fidelity's routing system sends it to one of several destinations: a market maker, a regional exchange, or an electronic communication network (ECN). Market makers like Citadel Securities and Virtu Financial are the most common destination because they pay Fidelity the most for order flow.

Fidelity publishes quarterly order routing reports that show where they sent orders and how much they received in PFOF. These reports break down routing by security type (stocks, options, municipal bonds) and show the top venues Fidelity used. You can find these on Fidelity's website under their regulatory disclosures or by calling their compliance department.

The routing decision happens in milliseconds and is based on Fidelity's internal algorithm, which weighs the PFOF payment against other factors like execution quality and speed. In theory, Fidelity is supposed to route to the venue that gives you the best "execution," but PFOF creates pressure to prioritize payment over price.

The conflict of interest and how it affects your price

PFOF creates a direct conflict: Fidelity profits when they route to the highest-paying market maker, but you benefit when they route to the venue with the tightest bid-ask spread. These are not always the same place. A market maker might pay Fidelity $0.001 per share to route an order, but if their spread is wider than a competitor's, you end up paying more overall.

The price impact is usually small—often a penny or less per share on a typical trade. But on a 1,000-share order, a one-cent difference costs you $10. On options, where spreads are wider, the impact can be larger. Fidelity argues that the speed and reliability of market makers offset the wider spreads, and for most retail traders, the difference is negligible. But the conflict exists regardless.

Fidelity is required by the Securities and Exchange Commission (SEC) to route orders in a way that meets a "best execution" standard, which means they must consider price, speed, size, and likelihood of execution. PFOF does not violate this rule, but it does create an incentive to bend the standard in Fidelity's favor.

What Fidelity discloses about PFOF

Fidelity discloses PFOF in several places. When you open an account, the account agreement mentions that Fidelity receives payment for order flow. Fidelity also publishes a Form CRS (Customer Relationship Summary) that highlights conflicts of interest, including PFOF. You can request this document or find it on Fidelity's website.

The most detailed disclosure is Fidelity's quarterly order routing report, which shows the venues they used and the amount of PFOF they received. These reports are public and available on the SEC's website or Fidelity's compliance page. They do not name individual customers or trades, but they show aggregate routing patterns and revenue.

Fidelity also discloses PFOF in their trade confirmations and account statements, though usually in small print. If you want to know exactly how much PFOF Fidelity received on your specific trade, you can contact their compliance department and request that information, though they may not provide it at the individual trade level.

How to reduce the impact of PFOF on your trades

If you want to avoid PFOF entirely, you can request that Fidelity route your order to a specific exchange instead of a market maker. This is called exchange routing or directed routing. You can do this through Fidelity's website or by calling their trading desk. However, most retail traders do not do this because it can result in slower execution or orders that do not fill.

Another option is to use limit orders instead of market orders. A limit order specifies the price you are willing to pay (or accept), which gives you more control over execution. Market orders are filled immediately at whatever price is available, which is where PFOF has the most impact. Limit orders are routed the same way, but you have a price floor or ceiling.

For frequent or large traders, the impact of PFOF can add up. If you trade thousands of shares per month, even a one-cent difference per share becomes significant. In that case, you might consider a broker that does not use PFOF, though these brokers are rare and may charge commissions instead. Fidelity's PFOF is a trade-off for commission-free trading.

PFOF and options trading

Fidelity receives PFOF on options trades as well, and the amounts are often larger than for stocks. Options market makers pay more per contract because the spreads are wider and there is more room for profit. Your options order is routed to a market maker in the same way as a stock order, and the same conflict of interest applies.

Options spreads are already wider than stock spreads, so PFOF has a more visible impact. If you are buying or selling options, the bid-ask spread you see on Fidelity's platform already reflects the market maker's profit margin. PFOF is on top of that. For this reason, options traders should pay close attention to the spread and consider using limit orders to control their entry and exit prices.

Why Fidelity uses PFOF instead of charging commissions

Fidelity switched to commission-free trading in 2019, and PFOF is how they replaced that revenue. Before that, Fidelity charged $4.95 per stock trade and $0.65 per options contract. PFOF is less visible than a commission, which is why many traders prefer it, but it is not necessarily cheaper. A $5 commission on a small trade is obvious; a one-cent-per-share PFOF impact is not.

Other brokers like Charles Schwab and TD Ameritrade also use PFOF and do not charge commissions. Some brokers, like Interactive Brokers, offer both commission-free trading with PFOF and commission-based trading without PFOF, so you can choose. Fidelity does not offer that choice—all retail trades go through PFOF routing.

Frequently Asked Questions

Can I see how much PFOF Fidelity received on my trades?

Fidelity publishes aggregate PFOF amounts in their quarterly order routing reports, but they do not typically disclose PFOF on individual trade confirmations. You can contact Fidelity's compliance department and request this information, though they may not provide it at the individual trade level due to confidentiality.

Does PFOF mean Fidelity is selling my order information?

No. PFOF means Fidelity is routing your order to a market maker who pays for the right to fill it. Your order information is not sold separately. The market maker sees your order when they receive it, but that is part of normal order routing, not a separate data sale.

Is PFOF illegal?

No, PFOF is legal and regulated by the SEC. Brokers must disclose it and route orders in a way that meets best execution standards. However, PFOF creates a conflict of interest, and the SEC has investigated whether some brokers prioritize PFOF payments over customer execution quality.

Should I switch brokers to avoid PFOF?

Most major brokers use PFOF, so switching may not help. If you trade frequently or in large size, the impact of PFOF might justify paying commissions at a broker that does not use it. For most retail traders, the difference is small enough that other factors—like platform quality and customer service—matter more.

Does Fidelity route to the best price or the highest PFOF payment?

Fidelity is required to route for best execution, which includes price, but PFOF creates an incentive to prioritize payment. In practice, Fidelity likely routes to venues that offer both reasonable prices and high PFOF payments. The exact weighting is not public, but you can see the results in their quarterly order routing reports.