0

Who uses Dark pool to trade? Are these large institutions or wealthy, private traders/investors? I see couple of indexes tracking them (DIX/GEX). But if Dark Pool trades do not go through the normal exchanges, where/how do they interchange? They are legal? How/when did they come about. Also are they considered the "Smart money"? So in effect, if they put large blocks of purchases or sales, they do not get listed on a level-2 or 3 quotes at all? and no one can tell what went through? I know some sites charge for this data and make it available in real time. Is this true? And does anyone think the knowledge of these can have advantageous benefits at all? -Thanks

4

I answer from my limited knowledge of dark pools.

Who uses Dark pool to trade?

Mostly institutional investors.

But if Dark Pool trades do not go through the normal exchanges, where/how do they interchange?

Mostly through a type of alternative trading system (ATS) called a crossing network, or through private arrangements.

They are legal?

In the US, they are legal. As stated above, dark pools are just another kind of ATS. The major feature dark pools is the lack of "pre-trade transparency" (explained below).

So in effect, if they put large blocks of purchases or sales, they do not get listed on a level-2 or 3 quotes at all?

Correct. Dark pool trades have no "pre-trade transparency"; quotes and orders are not public information. This is a major feature of dark pools. It gives institutions privacy about their orders, and reduces the market impact of their trades.

and no one can tell what went through?

In the US, this is incorrect. Dark pool trades do have "post-trade transparency"; trades have to be reported to a regulatory organization that will then disseminate information about the trade to the public. Off-exchange trades (including dark pool trades) have to be reported to a FINRA Trade Reporting Facility (TRF), and the trade information will then appear on the consolidated tape (which is distributed by Securities Information Processors [SIPs]).

To the uninformed, the term "dark pool" makes things sound more sophisticated, mysterious and sinister than it really is. I think of dark pools as merely a kind of ATS that lack of pre-trade transparency.

I know some sites charge for this data and make it available in real time. Is this true? And does anyone think the knowledge of these can have advantageous benefits at all?

I don't know. I will leave this for others to answer. What I do know is that the users of dark pools typically value their privacy, and would be unhappy if their large orders were to be publicly known before execution. Crossing networks cater to this demand for privacy, so most crossing networks keep their orders private and anonymous. If there were no privacy, other traders would know of the existence of large orders, and they may be able to front-run these orders. As this is disadvantageous to the parties placing large orders, privacy is considered important.

Further reading

  • A large brokerage firm operating its own dark pool can use it to 'internalize' orders, and some organizations that would otherwise be posting giant orders in a displayed market can post them in a dark pool without causing the market to react. Many smart routers will ping your orders against some dark pools first before sending them off to the displayed markets. – xirt Sep 13 '20 at 12:54
  • @Flux: Do you know if a delayed version of all the Darkpool trades are available anywhere on the Web? Also: Do these guys trade Futures too? I notice they are big on indexes. In addition: I subscribe to data providers, almost all trades show up next day, but some show up same day within 30-40min - how is that? (note they cannot tell if it was a buy or sell though) – Steve237 Nov 5 '20 at 5:10
  • @Steve237 "Do you know if a delayed version of all the Darkpool trades are available anywhere on the Web?" See edit. – Flux Nov 5 '20 at 5:26
  • Yes thanks...your last paragraph above. – Steve237 Nov 5 '20 at 23:22

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.