By: Katie Gomez

While retail traders might think they have complete free will and autonomy in their trades, it seems as though all roads lead to Citadel. Investors execute trades every day without even understanding the infrastructure that enables them. Citadel’s reach is staggering—processing approximately 40% of all U.S. retail trading volume, Citadel Securities has silently become the invisible infrastructure underpinning most Americans’ stock market activities. As a market maker, this financial giant plays a fundamental role in facilitating transactions by standing ready to buy and sell securities at publicly quoted prices, effectively serving as the crucial intermediary between buyers and sellers in an increasingly fragmented marketplace. 

Yet Citadel’s influence extends far beyond simple trade execution—through payment for order flow arrangements with major brokerages, advanced technological infrastructure, and unparalleled market data access, the firm has achieved an outsized influence on how retail orders are processed, priced, and prioritized. In this article, we’ll pull back the curtain on Citadel’s operations, explore how retail trades flow through the financial system, and ultimately reveal how one firm’s dominance shapes the market experience for millions of everyday investors who may never realize whose hand is guiding their trades.

What is Market Making?

Market making is the essential but largely invisible infrastructure that enables the modern stock market to function with unprecedented efficiency. Market makers like Citadel Securities serve as ready counterparties to virtually any trade, standing prepared to buy when investors want to sell and sell when investors want to buy.

Times have changed since human market makers shouted orders in chaotic pits, making split-second decisions, and having to make eye contact with the right person to buy and sell. This transformation began in 1987, post-market crash, where market makers started using electronic trading’s small order execution system (SOES), allowing small trade dealers to enter their trades electronically instead of over the phone. 

By the late 90s, online brokerage firms began to explode, and suddenly, small traders had access to the same real-time pricing brokers had, allowing trades to be made from personal computers, and thus, the day trader was created.

Since then, the stock market has only continued to evolve, transforming market makers into algorithm-driven electronic systems capable of processing millions of transactions per second. 

The effectiveness of market makers today is measured through several key metrics: 

1. The narrowness of bid-ask spread: The price difference between buying and selling\
2.  The depth of liquidity they provide: How many shares can be traded without moving prices
3. Their contribution to price discovery: How efficiently security prices reflect all available information.

While retail investors rarely consider the mechanics behind their trades, market makers have become indispensable to modern markets by dramatically reducing transaction costs, ensuring trades execute instantaneously, and creating the seamless trading experience that investors now take for granted.

What is Citadel Securities 

Founded in 2002 by billionaire investor Ken Griffin as an offshoot of his successful hedge fund operations, Citadel Securities has transformed from a modest market-making startup into a global financial powerhouse. The firm now operates in over 50 countries across North America, Europe, and Asia-Pacific, trading in more than 35 markets and handling approximately 40% of all U.S. retail equity volume on a typical day, a scale that processes billions of shares daily. 

A critical distinction often overlooked is that Citadel Securities functions as a separate entity from Citadel LLC (the hedge fund). However, both remain under Griffin’s control, creating a unique ecosystem that has drawn admiration and scrutiny from regulators. 

Several transformative milestones have marked the company’s meteoric rise:

1. The pioneering adoption of high-frequency trading technology in the mid-2000s
2. Strategic expansion into options and fixed-income markets following the 2008 crisis
3. Acquisition of KCG Holdings’ (2016) designated market maker business 
4. Pursuing retail order flow partnerships with major brokerages.

Citadel Securities’ market dominance flows directly from its multibillion-dollar technological arsenal. Its network of strategically positioned data supports sophisticated algorithmic trading systems that can analyze patterns and execute complex strategies at a superhuman scale. This creates a powerful feedback loop: superior technology attracts more order flow, generating more market data, further refining algorithms, and attracting even greater volume, ultimately enabling Citadel to process over 35% of U.S. equity trades daily, exceeding the entire Nasdaq exchange.

How Payment for Order Flow Works

Payment for Order Flow (PFOF) is central to Citadel Securities’ retail trading dominance. It functions as a financial arrangement where brokerages like Robinhood or Interactive Brokers route their customers’ orders to Citadel in exchange for compensation, essentially selling their clients’ trading activity. Under this model, when a retail investor places a market order, their broker doesn’t send it directly to exchanges but instead routes it to Citadel, which pays the broker fractions of a cent per share for this privileged first look at retail order flow. 

This practice has sparked intense controversy, with critics arguing it creates inherent conflicts of interest since brokers may prioritize routing decisions based on payment rather than best execution for clients. Regulatory bodies, including the SEC, have repeatedly scrutinized PFOF, with former chairman Gary Gensler once comparing it to “an auction of retail investors’ market orders with very little transparency.” 

Citadel profits from this arrangement through several sophisticated mechanisms: capturing the spread between bid and ask prices, gaining valuable real-time trading data across the market, and positioning advantageously for larger institutional trades. Additionally, they practice a controversial form of “latency arbitrage” where the firm can potentially use its millisecond-level speed advantages and unique visibility into order flow to adjust its positions before retail orders hit the broader market.

The Retail Trading Connection

Many retail investors have no idea what happens after they click “buy” or “sell” on their brokerage app. After their order is executed, they initiate a complex journey that differs significantly from institutional trades. The retail order arrives at their broker’s systems and undergoes initial processing (risk checks and account verification). Rather than routing directly to public exchanges, approximately 90% of these retail orders flow through wholesale market makers, with Citadel Securities dominating this landscape. 

For retail investors, this divided system produces mixed results. On one hand, retail traders often receive price improvement—executions slightly better than the publicly quoted National Best Bid and Offer (NBBO). On the other hand, critics argue that these marginal improvements mask larger opportunity costs, as market makers potentially extract greater value from the information contained in retail flow and the ability to execute orders.

The GameStop saga of 2021 dramatically highlighted these dynamics when unprecedented retail volume in meme stocks strained the system. As Robinhood and other brokers temporarily halted buying in specific securities, citing clearinghouse deposit requirements, intense public scrutiny fell on the relationship between Citadel Securities (the market maker handling much of this order flow) and Citadel LLC (the hedge fund with positions potentially affected by these trades).

This watershed moment not only introduced millions to the mechanics of market structure but also sparked renewed regulatory interest, changing the entire retail trading ecosystem. #CitadelScandal trended on social media, exposing the firm for pressuring Robinhood to limit retail trading, triggering congressional hearings and intensifying scrutiny of market structure issues that had previously remained obscure to the investing public.

Looking Ahead 

The market-making landscape stands at a pivotal technological and regulatory crossroads. The regulatory horizon appears increasingly uncertain, with the SEC signaling potential reforms to order handling rules, disclosure requirements, and possibly even the fundamental payment structure for order flow. Despite these challenges, Citadel’s massive scale, technological edge, and deep integration with retail brokerages position it to adapt and potentially even strengthen its dominance. However, emerging competitors like Jane Street, Two Sigma Securities, and Virtu Financial continue to intensify competition.

The story of Citadel Securities represents a modern market paradox: a firm that simultaneously democratizes market access while concentrating market power. Its technological innovations have undeniably made markets more accessible, liquid, and efficient for millions of retail investors to trade nearly instantaneously. Yet its dominance raises profound questions about market fairness, transparency, and the true cost of seemingly “free” trading. Understanding this infrastructure isn’t merely academic—it directly impacts investment outcomes and market integrity. As you click “buy” on your next order, remember the intricate system it must pass through, where Citadel stands as the ultimate gatekeeper.