Definition
Dark pools are private trading venues where large institutional investors can trade substantial share quantities without publicly displaying their orders before execution. This anonymity prevents information leakage that could move prices against them. While dark pools provide benefits for large traders and can reduce market impact, critics argue they reduce price transparency and may disadvantage retail investors. Dark pool trades are still reported after execution and count toward official volume.
Example
A pension fund needs to sell 5 million shares. Placing this order on a public exchange would likely drive the price down. In a dark pool, they can find a buyer anonymously without moving the market.
FAQ
What is Dark Pool?
A private exchange where institutional investors trade large blocks anonymously.
Why is Dark Pool important?
Dark Pool helps investors evaluate trading mechanics and make more informed decisions.