What Is Dark Pool Trading? How Does It Work?

When it comes to investing in cryptocurrencies, online exchanges are the best place to be. However, things are slightly different for investors who are filthy rich. If they want, they can buy a large number of crypto coins in private. They do it, so it doesn’t affect the market price much. This is when you go to a dark pool.

If you are curious to know what is a dark pool or best dark pool scanner, you are in the right place. This brief guide will give you a basic idea of how dark pool trading work.

What is dark pool trading?

To put it in simple words, dark pools are private exchanges for trading securities. It is called a dark pool because the trading takes place in private and is not accessible to public investors. Unlike a public exchange, there’s no transparency in a private exchange.

Dark pools were mainly introduced for block trading. These exchanges are accessed by institutional investors who do not wish to impact the market price by trading a large number of securities.

Since dark pools take place in private, it is often seen in an unfavorable light. However, they help facilitate large trades without disrupting the market price. But it involves the risk of conflicts due to a lack of transparency. Also, this type of trading is not for everyone.

How do dark pools work?

In today’s time, electronic trading is on the rise. As a result, exchanges can be conducted online. This has led to the increasing popularity of dark pool exchanges. It allows investors to trade large amounts of securities in private with lower fees. This is possible because these exchanges are not operated by public exchanges or banks.

Dark pool exchanges are best suited for institutional investors who are into block trading. They can opt for this option when planning to occupy a large portion of securities in the market.

Why do investors use dark pools?

Dark pool trading is associated with several advantages, which is why many investors are drawn to it. Here are some of the major reasons why investors should opt for dark pools.

  • Private trading

The most obvious benefit of choosing dark pools is that it allows investors to trade in private. They can execute large trades without becoming the spotlight of public exchanges.

  • Boosts liquidity and market efficiency

HFT and other algorithmic trading techniques are known to boost market efficiency. On the other hand, dark pools promote HFT. So it can be said that dark pools indirectly boost market efficiency.

  • Helps avoid price devaluation

In dark pool trading, one can trade without the fear of revealing their trade details. It also allows large trades to divide into small trades and executed before the price of a security is devalued.

Final Words

Dark pool trading is a complex concept. It is designed to facilitate trading in private and is suitable only for institutional investors. Unless you are loaded with cash and want to make a large trade, the dark pool is not for you.