Paying for order flow doesn't fleece customers. Those customers are guaranteed to trade at the best price by NBBO.
So why would people pay for order flow? The people who do this are liquidity providers. What they want to do is sit there and buy a stock for $10 and sell it for $10.01 all day long. If they are buying and selling to you or me that is a great deal.
But what happens when BIG HEDGE FUND buys a shit ton of stock for $10. BIG HEDGE FUND probable knows the price is wrong at which the liquidity provider will sell a bunch of stock for 10.01 but then instead of being able to buy it for $10, all of a sudden has to buy it for higher. This is how liquidity providers can lose some of their profits.
So they pay brockerages like Robinhood that don't have big hedge funds as customers, not to fleece those customers but just to sell liquidity to them without worrying about getting picked off.
So why would people pay for order flow? The people who do this are liquidity providers. What they want to do is sit there and buy a stock for $10 and sell it for $10.01 all day long. If they are buying and selling to you or me that is a great deal.
But what happens when BIG HEDGE FUND buys a shit ton of stock for $10. BIG HEDGE FUND probable knows the price is wrong at which the liquidity provider will sell a bunch of stock for 10.01 but then instead of being able to buy it for $10, all of a sudden has to buy it for higher. This is how liquidity providers can lose some of their profits.
So they pay brockerages like Robinhood that don't have big hedge funds as customers, not to fleece those customers but just to sell liquidity to them without worrying about getting picked off.