Why Financial Institutions Love Dark Pools

by | Jun 21, 2020 | Dark Pools | 0 comments

 

What a crazy market it has been…

With so much price action in stocks, I believe the financial institutions are turning to one area…

To execute their trades.

You see, the dark pools actually allow these large players to be “discreet” with their orders…

So they won’t impact the market.

Not only that, but it allows for them to place trades under the noses of those who don’t have access to the dark pools.

So why do the financial institutions love the dark pools, especially in these times?

 

[Revealed] Why Wall Street Loves Dark Pools

 

Now if you don’t already know…

Dark pools are alternative trading systems that allow traders to operate “in the shadows”. A large portion of the volume trade is actually executed in the dark pools…

And according to the SEC, there are more than 40 approved “private” venues.

I know what you’re probably wondering…

Why do financial institutions prefer trading in the dark pools over traditional exchanges?

There are two main reasons that come to mind:

  1. Large institutions don’t have time to dilly dally with orders. One of the major benefits of dark pools is they allow the funds to trade large blocks of volume without disturbing the market.On a public exchange, you see quotes displayed with bid/ask prices, but the market makers (mainly algorithms these days) are typically too afraid to display a lot of shares on “the book.” After all, a news story can hit at any second—they don’t want to get caught off-guard.
  1. Anonymity. Since dark pool trades are off the exchanges, the only way you’ll know about the trades is by subscribing to a service that flags down block trades… or developing a proprietary dark pool scanner.

On the other hand, if the financial institutions were to place trades on a lit exchange… such as NYSE or Nasdaq…

They actually run the risk of impacting the prices.

You see, if someone knows there’s a large order on the buy side for a stock…

They can look to buy shares of that stock or even calls.

Consequently, that can cause shares to pop.

For the financial institutions and hedge fund traders… that can hurt their position.

On the other hand, if those trades were placed in the dark pools, it gets harder to figure out which stocks the “big money” is piling into.

While the dark pools can help with anonymity…

It’s not completely anonymous… and there are ways to detect their moves.

For me, I use a dark pool scanner to uncover these trades.

To have a better understanding of how the dark pools work, I think it’s helpful to see which stocks went off in the dark pools and to keep an eye on them.

You can find out which stocks I detected that went off in the dark pools last week here.

Alert: Dark Pool Activity Detected In MRNA

The race for a vaccine and treatment for the coronavirus is speeding up. There are so many companies out there researching and developing potential treatments, that it’s often hard to find which ones are the clear leaders. With so much riding for biotech and...

Alert Update: NIO Pops After Dark Pool Activity

Dark pool activity has been heating up… and that means more “smart money” ideas to take advantage of. For quite some time, I’ve seen a slew of large bets being placed in the dark pools… And some of these have been monster trades. The other day, I mentioned a trade...

Alert: Dark Pool Activity Detected In NIO

NIO Inc. (NIO) just made all-time highs and it looks as if the run can continue. The key indicators I’m watching now signal NIO can have some legs. One of those indicators is dark pool activity. Why? Well, when there’s dark pool activity, it’s a signal that financial...

PINS Hits Target, Did Someone Know About The News?

The other day I dimed out a trade idea in Pinterest (PINS). Here’s what I mentioned…     PINS continues to look like a strong one having trended up for the past several months bouncing off the 50 sma on the day again just yesterday. I would like to see PINs...

Could Pinterest (PINS) Give FB A Run For Its Money?

You’ve probably seen the headlines by now… Companies are pulling their advertising from Facebook (FB) — putting the company’s revenue at risk. While that’s bad news for FB… it’s great news for smaller social media platforms, such as Pinterest (PINS). These companies...

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *