Step 1: The Order Goes to Your Broker
When you submit a market order on a retail brokerage app, the order goes to your broker's order management system. The broker's system records the order details — the security, quantity, side (buy or sell), and type (market, limit, etc.) — and begins the routing process.
Step 2: The Broker Routes the Order
Your broker's routing system decides where to send the order. For most retail discount brokers, market orders are sent to a wholesale market maker — frequently Citadel Securities — that has a PFOF arrangement with the broker. This routing decision is typically automated and happens in milliseconds. The routing is not based on which venue will give you the best price; it is based on the broker's routing agreements, which include PFOF arrangements.
Step 3: The Market Maker Executes
Citadel Securities or another wholesale market maker receives your order and executes it against its own inventory or by hedging with an exchange. The market maker is required to execute at or better than the NBBO (the best displayed price across all exchanges). After execution, a trade confirmation is sent back through the broker to your account. The market maker captures the spread or a portion of it.
Step 4: Post-Trade Reporting
After execution, the trade must be reported to regulatory systems. OTC equity trades are reported to FINRA's Trade Reporting Facility within 10 seconds. The trade also flows into the Consolidated Audit Trail. Your broker receives settlement information and updates your account balance. The complete process, from click to confirmation, takes seconds; the execution step takes milliseconds.