How Commission-Free Trading Is Funded
Zero-commission brokerages are largely funded by payment for order flow, where a broker routes customer orders to a market maker that pays for the right to execute them.
The arrangement is lawful and disclosed, but it creates a structural tension: the broker chooses where to route an order, and the venue paying most is not necessarily the one giving the customer the best price.
Best execution is a duty regardless of routing payments
Brokers owe a duty of best execution, requiring them to seek the most favourable terms reasonably available. Receiving payment for order flow does not remove that duty, and claims allege routing decisions favoured payment over execution quality.
Outages and Restrictions
Outage claims arise when a platform becomes unavailable during volatile trading, leaving customers unable to close positions. User agreements typically disclaim liability for system failures, and enforceability of those clauses is the central question.
Trading restriction claims arise where a broker limits buying in specific securities during extreme volatility. Brokers point to clearinghouse collateral requirements, which rise sharply with volatility and can force restrictions on short notice.
Claims plead breach of contract, breach of fiduciary duty where applicable, and negligence, though most brokerage agreements require arbitration, so these frequently proceed as individual arbitrations rather than class actions.
What Customers Should Do
Screenshot positions, orders and error messages during any outage, with timestamps visible. Reconstructing what you attempted and when is otherwise impossible, and it is what any claim depends on.
Check whether your agreement requires arbitration and whether it waives class participation, since that determines the available route before anything else.
Most brokerage disputes go to arbitration
Customer agreements typically require arbitration through the industry dispute resolution forum rather than court, and frequently waive class participation. That is the first thing to check, since it shapes every option that follows.
Before You Act
Thinking About Filing a Claim?
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Trading App Lawsuits: Payment for Order Flow, Outages and Trading Restrictions: Frequently Asked Questions
Answers to the most common questions about this case and your legal options.
What is payment for order flow?
An arrangement where a broker routes customer orders to a market maker that pays for the right to execute them, funding commission-free trading.
Is it lawful?
Yes, and it is disclosed, but brokers still owe a duty of best execution, and claims allege routing favoured payment over execution quality.
What do outage claims allege?
That platform unavailability during volatility prevented customers closing positions, with the enforceability of liability disclaimers being the central question.
Why do brokers restrict trading?
Brokers point to clearinghouse collateral requirements, which rise sharply with volatility and can force restrictions at short notice.
Where are these disputes heard?
Usually arbitration, since customer agreements typically require it through the industry forum and frequently waive class participation.
Legal Disclaimer
This article is general legal information, not legal advice, and does not create an attorney-client relationship. Case status, eligibility criteria, and any amounts described are as reported at the date shown and may change. Consult a licensed attorney in your jurisdiction about your own situation.