NPR.

Not too long ago, it was kind of difficult to trade stocks.

If you wanted to buy or sell, you'd have to call up a broker and pay them a pretty sizable commission.

By contrast, today, pretty much anyone with a smartphone and an account at a company like Robin Hood or E-Trade or Charles Schwab,

they could trade stocks for free.

And who doesn't like to get something for free?

That raises a big question, how are these companies making money then?

They do it through a controversial practice known as payment for order flow.

This is Ian DeGaida from Plata Money. I'm Darian Woods.

And I'm Adrian Ma. Those four words payment for order flow have transformed stock trading in the past few years.

So today at the show, we explain how it works, where it came from, hint, and involves a man whose name rhymes with Ernie trade off.

I think I know who you're talking about.

And we look at why the SEC, the Securities and Exchange Commission, wants to crack down on the practice.

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Payment for order flow. What the heck does this mean? So we'll break it down with the players in a stock trade. You've got a customer, a broker, and somebody you might not have heard of before, a market maker.

So the customer, that's you, you know, you play said order with a stock broker like Robin Hood on an app to buy, I don't know, 10 shares of indicator incorporated.

And I'm not exactly sure what indicator incorporated sells.

We sell indicators, all the finest indicators. Get them while they're hot. Yes. And so then what Robin Hood does is automatically send that order through the tubes of the internet to another company called a market maker.

And one of the biggest market makers there is is a company called Citadel Securities. And what Citadel does is try to match up the buyers and the sellers and actually execute the trade.

And when it does the buyer and the seller aren't actually trading with each other at the exact same price. There's this tiny difference. It's called a spread. And the stock is given to the buyer at a very slightly higher price than what the stock originally sold for. Just like a penny or less.

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