As dark pools move into the regulatory light, the real money is in aggregation, not in equity fragmentation.
In today’s complex markets, you have to ask yourself every day which portion of your orders needs to be traded openly, and which can wait to be filled in dark pools. What if you could see into dark liquidity, and determine how much of it is available in your stock? Watch this short video and learn the importance of understanding dark pools. Check out the other Bloomberg Tradebook videos below. For more information, visit www.bloombergtradebook.com.
More Insight Bites in 60 Seconds
Q: Why have dark pools become such a big part of stock trading today?
A: There are a few reasons that can explain the growth in dark pools. Some of the growth comes from most dark pools executions happening at the mid point price (the price between the bid and ask), such executions save both parties a portion of the spread. Some dark pools offer unique economic models for trading, these models attract certain type of traders looking to minimize their explicit costs of trading. Also, many of the biggest dark pools are broker crossing networks where large broker dealers cross their own client’s flow before sending it to the open market. Tthis type of trading facility has been around for a very long time, it used to be called “the upstairs market” but now it’s done electronically in a dark pool.
Q: Is there a way to estimate how much of a stock’s volume will get done in dark pools?
A: It is hard to estimate this figure because every day a stock might trade differently. Bloomberg Tradebook’s Strategy Analyzer tool (STAZ) tries to estimate the amount of volume that will get done in dark pools based on a proprietary model and information from actual trading in that stock by Tradebook. Traders who use this information can bias their algorithm to trade more or less in the dark to make sure they are capturing all the liquidity they can.