Binance's US stock page says it may receive payment for order flow
Each order's fill price is the only place to see whether the PFOF behind zero commission costs you anything.
Buying US stocks on Binance costs no commission; each order carries a platform fee instead, set out in Binance US stock fees: the full fee table. On the other side of the trade, the platform may receive payment for order flow (often shortened to PFOF) for routing your order.
In the US, regulators allow brokers to take this kind of payment, but not to let it get in the way of seeking best execution for their customers.
What the disclaimer says about who handles your US stock orders
The disclaimer on Binance's Stocks & bStocks page sets out where orders go: your introducing broker, Nest Trading Limited, routes your securities orders to its clearing broker partner, Alpaca Securities LLC, for execution, clearing, settlement and custody, so it is Alpaca rather than Binance that executes and holds your shares. The payment for order flow sentence is part of the same disclaimer and relates to that routing step.
Your shares are held in custody by this partner brokerage, and you are their beneficial owner.
The page only says Binance “may receive” such payment. Whether it does, and how much, is a question for Binance support.
Payment for order flow is what a broker gets from the firm that takes its orders
The US SEC defines payment for order flow broadly: any monetary or in-kind payment a broker receives for routing customer orders to a particular broker or trading venue, such as the cash a wholesale market maker pays a retail broker for its customers' orders, and the credits, offsets or discounts on trading fees that exchanges give. A broker filling its own customers' orders directly as principal (internalisation) is also treated as an economic incentive that may affect order handling in the same way.
Does payment for order flow make your fill price worse?
That depends on whether the broker meets its best execution obligation; one line in a disclaimer can't settle it. In the US, a broker generally doesn't breach its best execution duty merely by receiving payment for order flow, but such payments can raise questions about whether it is meeting that duty, and a broker must not let them interfere with its efforts to obtain best execution.
For a broker that receives payment for order flow, the chance of price improvement is a factor that deserves particular weight. Price improvement is the amount by which a fill beats the best quote at the moment the order reaches the market; a fill worse than the best quote is called price disimprovement.
Among FINRA member firms, the firm that routes an order and the firm that executes it each carry their own best execution obligation, and that obligation can't be handed to anyone else. They also have to compare execution quality across competing markets regularly, covering markets they have routing arrangements with and markets they don't, and they can't negotiate routing terms for the sake of payment for order flow in a way that gives up price improvement their customers could otherwise have had.
For automatically executed orders, especially small ones (fractional share orders included), getting just the best bid or best offer doesn't necessarily satisfy best execution.
How to check your fill price on a Binance US stock order
When you place the order, note the price shown on the page, then compare the fill price with it once the order executes. For a buy, a fill below that price means you did better; a fill above it means worse than the price shown when you placed the order. For a sell, it's the reverse.
If the fill price matters to you, use a limit order to fix the worst price you'll accept before anything else; a market order fills at whatever price is available at that moment, and the price is out of your hands. Before ordering, check the trading hours to see which session the market is in, then choose between a limit order and a market order. The platform fee is charged separately, so include it when you check your total cost.
None of the above is investment advice.
The rules US brokers follow when they take payment for order flow
Is payment for order flow taken out of my account?
It isn't a fee charged to you. Payment for order flow is what a broker receives for routing customer orders to a particular broker or trading venue, and the firm taking the orders is the one that pays it. What you pay yourself when buying US stocks is the platform fee listed on the fees page; whether payment for order flow shows up indirectly in your fill price depends on whether the broker meets its best execution obligation.
Do US brokers have to tell customers they receive payment for order flow?
Several things have to be disclosed. When a trade involved payment for order flow, a US broker generally has to note it on the customer's trade confirmation, and explain the source and nature of the payment if the customer asks in writing; it has to publish order routing reports on its website every quarter; and it has to disclose its policies when the account is opened and every year after that. Disclosure doesn't remove the best execution obligation.
How often must FINRA member firms review execution quality?
Firms that don't review order by order must do it at least quarterly, by security and by order type. The factors include price improvement, price disimprovement, the likelihood of execution of limit orders, speed of execution, size of execution, transaction costs, and whether payment for order flow arrangements exist. Orders a firm decides to execute internally must be reviewed order by order.
Source documents on payment for order flow
- Binance: Stocks & bStocks (the payment for order flow sentence is in the disclaimer at the bottom of the page)
- FINRA: Regulatory Notice 21-23 (Best Execution and Payment for Order Flow, published June 23, 2021)