Dark Pool
A dark pool is a private trading venue where securities are bought and sold without public disclosure until after execution, allowing large investors to trade with reduced market impact.
Definition
A dark pool is a privately operated financial marketplace where securities are traded outside of public exchanges. These venues allow institutional investors to execute large trades without revealing order details before completion.
Dark pools are a type of alternative trading system (ATS) and are designed to reduce price disruption that can occur when large orders are exposed to public markets.
How It Works
Dark pools match buy and sell orders internally, with trade details reported only after execution. Orders placed in dark pools are not visible on public order books.
Most dark pool activity involves block trades, where large quantities of securities are exchanged between institutional participants such as investment banks, hedge funds, and asset managers.
Why the Term Matters
Dark pools influence market liquidity and price discovery by shifting a portion of trading activity away from public exchanges. Their presence affects how and where large trades are executed.
Because dark pools operate with limited transparency, they are closely monitored by regulators and remain a subject of ongoing market structure debate.
Related Concepts
- Alternative Trading System (ATS)
- Liquidity
- Block Trades
- Market Transparency
- High-Frequency Trading (HFT)
FAQs
What is a dark pool?
A dark pool is a private trading venue where securities are traded without public disclosure until after the trade is completed.
Who uses dark pools?
Institutional investors such as hedge funds, investment banks, and asset managers primarily use dark pools.
Why are dark pools called “dark”?
Dark pools are called “dark” because order details are not visible to the public before execution.
Are dark pools legal?
Dark pools are legal and regulated as alternative trading systems, though they operate with less transparency than public exchanges.
What is dark pool liquidity?
Dark pool liquidity refers to trading volume that occurs within dark pools rather than on public exchanges.
This article was created with AI assistance and reviewed by an editor. For more information, please refer to our Terms of Use.
Risk Disclosure
All content is provided for educational purposes only and does not constitute investment advice. Trading involves risk, and past performance is not indicative of future results. Please review our full Risk Disclosure for additional details.
Explore the SharperTrades Academy
For readers who want to deepen their understanding of market structure, risk management, and price behavior, explore the SharperTrades Academy, where we publish clear, evergreen explanations designed to support ongoing learning.