What Is Dark Pool?
Dark pools are private trading venues — separate from public exchanges like NYSE or NASDAQ — that match buyers and sellers without displaying orders or trades publicly until after execution. The goal is large institutions trading big blocks without moving the public market.
When a hedge fund wants to buy 500,000 shares, doing so on the public exchange would push the price up against itself. Dark pools let it find a matching seller (another institution) and execute at the midpoint of the public spread, with neither side knowing the other's identity.
Critics argue dark pools hurt price discovery and create unequal access. Retail traders mostly don't interact with dark pools directly, but their existence affects the public order book — when significant volume is happening 'in the dark,' the visible spread and depth understate true activity.
Related terms
- Order Book — Real-time list of all open buy and sell orders for an asset, by price.
- Liquidity — The ease with which an asset can be bought or sold without significantly affecting its price.
- Market Maker — Firm that quotes both buy and sell prices, providing liquidity for a profit on the spread.
- Iceberg Order — Large order split into smaller visible chunks to hide true size.