<i>The funds then get a free look at these orders where if they are beneficial to them they can fill the order, or if they aren&#x27;t, then they can pass the order onto an exchange.</i><p>This is simply false. For example, IB describes the mechanism here:<p><i>Liquidity Provider Relationships: IB has entered arrangements with certain institutions under which such institutions may send orders to IB at or near the NBBO. These orders are held within the IB system and are not displayed in the national market. If another IB customer order could be immediately executed against such an order held in the IB system (at the NBBO), the orders may be crossed and the execution reported to the National Market System...</i><p><a href="http:&#x2F;&#x2F;www.arcacapitalinvestments.com&#x2F;new&#x2F;arcacapitalinvestments&#x2F;images&#x2F;Rule%20606%20Interactive%20Brokers.pdf?advisorid=4024665" rel="nofollow">http:&#x2F;&#x2F;www.arcacapitalinvestments.com&#x2F;new&#x2F;arcacapitalinvestm...</a><p>So no, the liquidity providers don&#x27;t get a &quot;free look&quot;. They get to place orders (before you do) and your brokerage fills them if there is a price match. The price is always at least as good as in the national markets, modulo the limitations of physics&#x2F;CAP theorem&#x2F;etc.<p>The purpose here is to enable price discrimination - you pay a lower price for liquidity (since you have less adverse selection), Goldman pays a higher price (since they have more adverse selection).