Dark pools definition
Dark pools are networks – usually private exchanges or forums – that allow institutional investors to buy or sell large amounts of stock without the details of the trade being released to the wider market. Dark pools can also be referred to as dark pool liquidity, or dark liquidity.
They came about as a way for large-scale investors to make deals with each other that would not result in an adverse price move against them.
If an investor wants to sell a major portion of a company’s stock on a public exchange they must declare their intention, and run the risk that the value of the stock will drop thanks to the swell in supply. Dark pools remove this risk by announcing deals only after they have taken place, and restricting access to deals.
Some traders have spoken out against the existence of dark pools as they feel that their presence unfairly gives an advantage to large scale institutional investors. Any share dealing client with IG can redress the balance and access dark pools via smart order routing technology.