Dark pools of liquidity are private stock exchanges designed for trading large blocks of securities away from the public eye.
They are called "dark" because of their complete lack of transparency, which benefits the big players but may leave the retail investor at a disadvantage.
It all started with a need for big institutions to get their trades executed with as little market impact as possible quickly turned into a great money-spinner for banks and brokers. If they could match client orders in their own dark pools, they wouldn’t have to pay the stock exchange’s fees and perhaps they could themselves do a bit of buying and selling in their own pools and profit even more.
With this realization, banks and brokers began to promote and encourage the use of their own dark pools to a wider clientele, including retail investors. The spread of dark pools has made them an integral part of the current market structure, and there is now no escape from dark pools.
As Dark pools grew, in part due to the growth of high-frequency trading (HFT). Institutions now have an even stronger need to avoid what they felt was the predatory trading of high-frequency traders as the HFT crowd tried to sniff out large orders in the displayed markets. This resulted in more and more institutions traded in the dark. It brought about a problem for the dark pools, though. Who would be trading with the big institutions? To satisfy the demand for more liquidity, some dark pools began letting high-frequency traders into their pools so that more trades could be matched.
How does this work inside crypto?
Decentralized dark pools are used to shield large trades from causing price slippage in mainstream markets. Decentralized dark pools break down a cryptocurrency order into multiple fragments and match them back again using zero-knowledge proofs.
See Investopedia for the full article on decentralized dark pools:
investopedia.com/terms/d/decentralized-dark-pool-trading-platforms.asp
As the cryptocurrency ecosystem is still evolving and the dearth of large institutional investors and liquidity in the space means that decentralized dark pool trades have a fairly limited impact on prices and trading in mainstream crypto markets. But with various methods of operating, things are not always what they seem.
UK exchange Kraken was the first to market in 2016 with an Ethereum dark pool. CEO Jesse Powell noted: “Dark Pool trading allows for orders to be placed out of sight so that traders can make large buy or sell orders (minimum of 50 bitcoin or 2,500 ether) without revealing their sentiment to other traders. Advantages include reduced market impact and better price for large blocks.”
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
They are called "dark" because of their complete lack of transparency, which benefits the big players but may leave the retail investor at a disadvantage.
It all started with a need for big institutions to get their trades executed with as little market impact as possible quickly turned into a great money-spinner for banks and brokers. If they could match client orders in their own dark pools, they wouldn’t have to pay the stock exchange’s fees and perhaps they could themselves do a bit of buying and selling in their own pools and profit even more.
With this realization, banks and brokers began to promote and encourage the use of their own dark pools to a wider clientele, including retail investors. The spread of dark pools has made them an integral part of the current market structure, and there is now no escape from dark pools.
As Dark pools grew, in part due to the growth of high-frequency trading (HFT). Institutions now have an even stronger need to avoid what they felt was the predatory trading of high-frequency traders as the HFT crowd tried to sniff out large orders in the displayed markets. This resulted in more and more institutions traded in the dark. It brought about a problem for the dark pools, though. Who would be trading with the big institutions? To satisfy the demand for more liquidity, some dark pools began letting high-frequency traders into their pools so that more trades could be matched.
How does this work inside crypto?
Decentralized dark pools are used to shield large trades from causing price slippage in mainstream markets. Decentralized dark pools break down a cryptocurrency order into multiple fragments and match them back again using zero-knowledge proofs.
See Investopedia for the full article on decentralized dark pools:
investopedia.com/terms/d/decentralized-dark-pool-trading-platforms.asp
As the cryptocurrency ecosystem is still evolving and the dearth of large institutional investors and liquidity in the space means that decentralized dark pool trades have a fairly limited impact on prices and trading in mainstream crypto markets. But with various methods of operating, things are not always what they seem.
UK exchange Kraken was the first to market in 2016 with an Ethereum dark pool. CEO Jesse Powell noted: “Dark Pool trading allows for orders to be placed out of sight so that traders can make large buy or sell orders (minimum of 50 bitcoin or 2,500 ether) without revealing their sentiment to other traders. Advantages include reduced market impact and better price for large blocks.”
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
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