Retail brokers continue to hold the majority of the market share when it comes to payment for order flow (PFOF) in the options industry. According to a recent report, Robinhood and Charles Schwab, the top two retail brokers in the options business, received 64% of the record $883.5 million PFOF for retail trades in 4Q. This represents a significant increase from four quarters earlier, when payment rates were at 40.8 cents per contract.

The surge in PFOF can be attributed to the growing popularity of options trading among retail investors. With more and more individuals turning to options as a way to hedge against market volatility or speculate on price movements, the demand for PFOF has increased accordingly. Retail brokers have been able to capitalize on this trend by offering competitive pricing and seamless execution, which in turn has attracted more traders to their platforms.

It’s worth noting that while retail brokers dominate the PFOF landscape, institutional brokers are also playing a significant role in the options industry. Institutional brokers, such as JPMorgan and Citigroup, have been expanding their offerings to include more complex options products, which has allowed them to capture a larger share of the market. However, retail brokers continue to hold a significant advantage when it comes to PFOF, thanks in part to their ability to offer lower prices and more user-friendly platforms.

The increase in PFOF rates is also indicative of the overall health of the options industry. As more investors turn to options as a way to manage risk or profit from market movements, the demand for PFOF is likely to continue growing. This could lead to increased competition among brokers and potentially higher prices for traders in the future.