On this episode of Jargon Translator, Scarlett Sieber breaks down order flow, the stream of buy and sell orders moving through the market. Order flow shows brokers what investors want, helps market makers set prices, and matches trades, acting like traffic patterns but with money instead of cars. It’s incredibly valuable, which is why brokers sometimes sell it to market makers to manage inventory, price trades, and profit from spreads also known as payment for order flow. Controversial? A bit. But it’s also how many commission-free trading apps stay in business. Understanding order flow gives insight into where demand is building, where prices might move, and in a world of algorithms, it’s the closest thing to “reading the room.” Quiet, constant, and essential, that’s order flow.
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Welcome back.
I'm Scarlett Seber from Money 2020, and this is Jargon Translator, where we take the terms you hear on CNBC and turn them into something that doesn't require a decoder ring, cause there's a lot of terms floating around.
Ever wonder who sees your trade before it hits the market?
That's order flow, and it is worth a fortune.
Today's term.
You guessed it, order flow.
Order flow is simply the stream of buy and sell orders moving through the market.
It's how brokers know what investors want, how market makers set prices, and how trades actually get matched.
Think of it like traffic patterns, except instead of cars, it's money deciding where to go.
Here's the twist, order flow is valuable, really valuable.
That's why brokers sometimes sell it to market makers who use it to price trades, manage inventory, and yes, make money on the spreads.
This is where you may have heard the term payment for order flow.
That's when a market maker pays a broker for the right to execute your trade.
If it sounds controversial, well, it is, but it's also how many commission-free trading apps keep their lights on.
Orderflow helps markets know what's coming, where demand is building, and where prices might move next.
In a world of algorithms, it's the closest thing to reading the room.
Order flow, the heartbeat of trading, quiet, constant, and incredibly valuable.
And that is it for today.
Your jargon translated.
Have a term you want us to break down, drop it in the comments below, and it just might make the cut.
Back over to you.