Should You Be Afraid Of Dark Pools?
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It sure sounds ominous: Dark Pools and Dark Pools of Liquidity are in the headlines frequently now. The term makes it sound like they’re nefarious forms of finance, but that depends on what camp you’re in.
And, to some extent, how much money and connections you have.
Dark pools aren’t necessarily evil. You don’t need to wear a mask and have Stormtroopers to master them. They’re simply connection networks that provide liquidity that are not displayed on order books.
Big investors and institutional investors say this allows them to enter or exit positions without revealing themselves to the market.
Some say that’s good. Others say it’s not fair.
We’ll take a look at the pro-Dark Pool camp first.
According to Forbes, investors shouldn’t be afraid of Dark Pools. After all, if you have money in index funds, 401 Ks, and mutual funds, you may be one of the investors who is benefiting from trading off exchanges.
Forbes does point out some negatives, too, such as “gaming”–when information leaks out of the pre-trade Dark Pool and an investor can pre-empt trades.
On the anti-Dark Pool side, Money Morning has a few reasons to fear Dark Pools:
- Dark Pools will change “public pricing.”
- Small and mid-cap stocks will become harder to trade for the individual investors and trader.
- And, Dark Pools will eventually prompt more interest from regulators.
Dark Pools are probably not something to lose sleep over, but at least individual investors and traders should be aware that they exist. It should also prompt them to look for other advantages in a financial world where the doors of access are not always open.
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