Traders who have interest in exploring anonymous, dark pool trading can do so relatively easily. stock trades executed on dark pools and other off-market vehicles was almost 39%, according to a Wall Street Journal report. This is true despite the surge in popularity that dark pool trading has enjoyed in recent years.ĭark pool investing has become one of the overwhelmingly most popular ways to trade stocks. Technically, you buying a company’s stock will affect share prices, but practically, it won’t be to any measurable degree.Īs a result, a retail investor typically has little use for dark pool investments. Unless you manage a substantial portfolio, your influence on the market most likely isn’t going to drastically influence other investors. There’s no practical chance that an average retail trader will shift the market. Through a dark pool, the mutual fund can try to sell off its shares without alerting the market and causing a run on the company’s stock. Word of this would get out immediately on a public exchange. This means that every new buyer will pay less and less for each parcel of the mutual fund’s stock. And if this is a particularly high-end fund, the public loss of confidence might depress the stock price further. The sudden rush of available stock will push its price down. Once the market gets word that the mutual fund is liquidating its shares, the price will quickly drop. Instead it will have to sell in parcels, finding a buyer for 10,000 shares, then 1,500 shares, and so on and so forth. It’s very unlikely that the fund will sell all of these shares at once. Let’s assume a mutual fund wants to sell 1.5 million shares of a company. Example of How a Dark Pool Can Be Helpful On a dark pool, these parties can keep things quiet a little longer and hopefully avoid spiraling prices. Investors would immediately know about the takeover or share buyback in progress and would trade accordingly. Yet as the company begins to buy all of its own shares off the market, the price will spiral, pushing expenses, and potentially debt, higher.Ī public exchange would publish all of this information through its central marketplace. The board is not looking to enrich itself, just restructure the company. Or consider a company in the middle of a good-faith share buyback. That could set off a rush to buy the stock, sending its price through the roof and making the takeover far more expensive. If they begin buying shares of stock in a company, other traders might assume that they plan an acquisition. This isn’t always a good thing.Ĭonsider a trader known for takeover bids. When an institutional investor wants to shift assets, it risks creating a price swing due to other investors who see the interest or disinterest and react accordingly. This happens to large scale investors, too. He’s often seen as a one-man bull market. The “lift” comes when other investors see Icahn’s interest and jump in, causing the stock price to rise. The story goes that Icahn can influence the price of a stock just by purchasing it. The influence they could potentially have on the market is often known as the Icahn Lift, named after legendary investor Carl Icahn. Why Dark Pools ExistĬhiefly, dark pools exist for large scale investors that don’t want to influence the market through their trades. For example, a public institution might have to publish this information due to disclosure laws that have nothing to do with the dark pool. The last type is available through independent operators and there is no price discovery.ĭark pool exchanges keep their confidentiality because of this over-the-counter model, in which neither party has to disclose any identifying or price information unless specific conditions compel them to. The second acts like an agent rather than a principal and there is no price discover as the prices come from exchanges. These prices come from their own order flow. The first type is set up by broker dealers for their clients and may include proprietary trading. There are three common types of dark pools: broker-dealer owned, agency broker or exchange-owned and electronic market makers. Instead of relying on centralized pricing, such as with a public exchanges like the NYSE, over-the-counter traders reach their price agreements privately. In a dark pool trading system, investors place buy and sell orders without disclosing either the price of their trade or the number of shares.ĭark pool trades are made “over the counter.” This means that the stocks are traded directly between the buyer and seller, oftentimes with the help of a broker. Dark pools, otherwise known as Alternative Trading Systems (ATS), are legal private securities marketplaces.
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