Don't Be Afraid Of The Dark Pools (really?)

While the term dark pool might sound mysterious, they can provide price improvement and better quality trades for retail investors.

Dark pools are venues where trading is done off of an exchange to obtain price improvement and not move the price if a large block of stocks is being traded. While the term dark pool conjures up visions of dark alleys and one broker passing another broker stocks in a silver suitcase, they can be helpful for moving tough-to-trade securities. Still, why should dark pools matter to you?

One reason is since dark pools trade off of the traditional exchanges and often execute at the midpoint between the bid and the ask price, they can be a way to save you money.

Forbes: Many buy-side traders are concerned about gaming in dark pools. Is this a legitimate concern now, and what are dark pools doing to reduce gaming?

Somehow, Forbes always seems to come out in favor of the stupidest market-rigging schemes imaginable.

Dark pools are nothing more or less than a way for the “big guys” trying to escape the retail investors and day traders who spot large blocks of stock being moved and act accordingly. By their very definition, they’re NOT providing any improvement to the retail investor - if they were, then why are the big guys trying to hide their trades from the retail investor?

Somewhere in the middle of this article, it says:

But dark pools have evolved to give retail investors and smaller orders a crack at price improvement and better liquidity.

I wonder why they try to pull in retail investors now. A way to generate more revenue? It seems they want to set up dark pools for big boys on the one hand and ones for small guys on the other side. Is this PR gimmick? That is, they want to say, "We also work for small guys, too." Curious.

As more of these dark pools set up, they find that they need consistent volume, which has been difficult to find these last six months.

So they start handling order flow for smaller and smaller clients until they’re nothing more than a fairly conventional ECN who prints the trades to the tape late and they don’t show their order book.

Quite frankly, the very existence of these things is more evidence of how Wall Street has become nothing but a cabal of grifters and thieves. After the long history of things like bucket shops and crooked operators, you’d think that an industry that wants to pull in the majority of the public would think “Hey, maybe we want to avoid the appearance of setting up a market from the bad old days where we have one set of rules for the big insiders, and another for the little people...”

But no. They’re just not that smart. On the one side, we have hedge funds, dark pools, over-the-counter derivatives with no margin checks, and on the other side, we have the marks, I mean chumps, oh, excuse me... I mean the retail investing public.

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