In finance, dark pools are venues in which securities, derivatives, or currencies are secretly traded between counterparties, away from public exchanges and without disclosing prices or volume to the general public.

There are three types of dark pools. The first type is dedicated dark pool companies that set up and maintain dark pools as their primary business. The second type is dark pools set up within large brokerages to privately match buyers and sellers from among their own clients. The third and newest type of dark pools are dark pools set up by public exchanges themselves in an effort to get a piece of this new market.

One of the main purposes of dark pools is for large institutional investors to successfully fill massive orders without moving prices as much as they otherwise would. If these investors attempted to fill these large orders on public exchanges they would tend to drive the price either up or down by a significant amount, depending upon whether they are buying or selling.

Although they serve a useful function for these large investors, dark pools have been criticized for creating an information gap between institutional and retail investors. Retail investors do not have access to dark pools, or to knowledge of what is going on inside dark pools, and thus may find themselves at an informational disadvantage when attempting to trade a given security.

Log in or register to write something here or to contact authors.