If you know me, I’m all about stepping my game up and trying to figure out new ways to attack the market.

For quite some time now, I’ve been following dark pool activity and I believe I developed an edge. Heck, I spotted some dark pool activity in GrubHub (GRUB), before the M&A chatter.

Today, I want to shed some light on how financial institutions and other large players use the dark pools to their advantage…

And reveal to you how I use the dark pools to generate trading ideas.

 

Dark Pools — Friend Or Foe?

 

While there are many critics of dark pools… I believe I can actually use them to my advantage. Now, if you don’t know, dark pools are “private” trading venues typically housed inside some of Wall Street’s largest financial institutions.

They were actually created to allow some of the largest players to exchange large blocks of shares covertly.

It may sound shady to you at first… but I really don’t think it is. In fact, I believe it can help to facilitate an orderly market.

Think about it like this… if a trader at a financial institution wants to purchase say 1M shares of a stock that trades on average 5M shares a day.

If they go on a lit exchange — the exchanges everyday traders buy and sell stocks on — chances are they’re going to impact the overall price of the stock. However, if they go on the dark pools, it can limit the impact on the stock.

By using dark pools, financial institutions actually prevent stocks from going into a frenzy. 

However, there is a negative to these dark pools… every day traders probably won’t see these trades go off, and to me, that’s unfair because there’s a lack of transparency.

Not only that, but sometimes, there are “hidden” trade ideas in the dark pools.

I don’t know about you, but if someone throws down a large bet on a stock, I think they may be in the know… that’s why I use a proprietary scanner to detect these dark pool trades.

For example, with the GRUB trade… I spotted a large block trade.

 

Dark Pool Activity Spotted In CZR

 

Of course, that trade was in the past… and I don’t think that will help traders too much. The thing is, there is one trade on my radar — Caesar’s Entertainment (CZR). I noticed a 314K share block go off at $9.87 the other day… and it looks bullish to me.

Right now, there is a potential merger between CZR and ERI… that may close in late June or early July.

Does someone know something about this merger that I don’t?

Who knows, I’m going to wait and see… and keep this on my radar.