Dark pool - Financial definition
Financial acronyms
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Concise definition of the term dark pool
Dark pools are essentially private stock markets which are run by certain banks or brokers. They allow investors to trade large blocks of shares anonymously and without having to disclose volumes or prices.
Comprehensive definition of the term dark pool
The majority of dark pool trades represent large transactions by financial institutions that are offered away from public exchanges for the sake of confidentiality.
Advantages and concerns of dark pools
Institutional investors use dark pools because they allow them to hide their trading strategies, to expanding their sources of liquidity and to reducing their transaction costs while mitigating against the effect of unwanted price movements due to the market response to large transaction volumes.
For some market participants however this represents a disadvantage as they cannot see the orders before they are executed. Prices are agreed upon by participants in the dark pools, so the market as a whole is no longer completely transparent.