Dark Pool - Explained
What is a Dark Pool?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat is a Dark Pool?How Does a Dark Pool Work?
What is a Dark Pool?
A dark pool is also known as a black pool. It is a forum for the exchange and trade of securities and financial instruments in which investors trade without the trade being exposed until after execution. Securities, derivatives and financial instruments traded in this forum cannot be publicly accessed by other investors. Investors that engage in this form of trading trade without publicly revealing their intentions until after the trade is executed.
Back to:INVESTMENTS & TRADING
How Does a Dark Pool Work?
Investors and brokers can trade a large share or engage in block trading using the dark pool. This alternative trading system started in the 1980s, at this time, the SEC approved block trade in this system. Dark pools charge minimal fees for transaction when compared to the normal stock exchanges. Dark pools have however continued to increase, especially with the emergence of electronic trading that was developed to minimise transaction cost. The ruling of the Securities and Exchange Commission (SEC) in 2007 that opened doors to competitive trading also contributed to an increase in the number of dark pools. Institutional investors and brokers who want to transact a large number of shares often participate in dark pools. Investors find buyers and sellers without exposing their true intention using the dark pools. This method help prevent weighty price devaluation which could have happened if the true intentions of traders were made public. Basically, dark pools provide private trading for investors, especially investors that want to engage in block trade. There are many types of dark pools in the United States such as Goldman Sachs' Sigma X dark pool andMorgan Stanley's MS Pool. However, one downside of dark pools is that they lack transparency and are seen to be unfair practices by a set of investors. Although, dark pools are regulated by the SEC, their increase is regarded as unsafe for the stock market.