I Am Worried About Dark Pools

Sep 24th, 2013 | By | Category: General Comments
Share on StockTwits


RE:  Should we be concerned with all of the volume being done on dark pools as retail traders? question-cartoon1

@MikeBellafiore

Order The PlayBook

SMBU recently sent a survey to the SMB Trading Community asking of their trading frustrations. From this survey we ferreted out the top five trading frustrations. Then we held a Webinar to offer solutions. Here is a link to that Webinar: Solving the Top Five Trading Frustrations From the SMB Trading Community. During this Webinar we were asked the question above.

Yes, I am worried about access to dark pools. As a pro trader your P&L will be greatly affected if you don’t have access to the best dark pools.

Let me offer some background for this discussion on dark pools. There is what we call the lit market and dark pools. The lit market is where you can bid on the traditional market makers and ECNs: ARCA, BATS, EDGX, etc. Everyone in the market can see your orders. Unless you are a pro trader you trade on the lit market. Dark pools are hidden orders that the retail traders and professional traders cannot see. They trade on exchanges that are often not available to retail traders. While market volume has decreased, volume on dark pools has increased. Dark pools are become an increasingly bigger player in our markets.

Without the proper access to dark pools you may:

1) not get filled at the best prices
2) not be able to exit at the best prices
3) not be able to buy as much of a position as you like at the price you prefer

Dark pools are something we must understand as pro traders. Here are some recent tweets from me:

dark pools

 

dark pools 2

 

darkpools3

I spend significant time thinking about the best dark pools to execute on, how to obtain access to the most important dark pools, learning if there are new dark pools that we do not have as a firm that we should. I had a meeting last week with a big bank who was offering a new dark pool route. I am entering most of my orders today with dark pools. I find that when I bid for a stock on the lit market, the stock immediately runs in the other direction. I find that when I offer on the lit market for a stock it immediately drops. I might even bid or offer for as little as 100 shares and the stock will run in the other direction. It is so silly. The HFTs are so sensitive to bids and offers on the lit market that they react in the opposite direction to orders being shown.

If you’re a retail trader who is not that active nor price sensitive then dark pools are mostly a nonissue. If you’re an active trader or price sensitive to buys and sales, then you’ll want to read up on access to dark pools.

Related blog posts:
Sizing and Entries in This Volatile Market
The 800-Pound Gorilla in the Room: Exits

You can be better tomorrow than you are today!

Mike Bellafiore

One Good Trade
The PlayBook


No relevant positions

dna of successful trading banner

Find Your Trading Confidence in Just Ten Weeks
Discover the principles of elite performance and the eight
core topics that have the
greatest impact on your
trading success.
dna of successful trading banner
Tags: , , , , , , , , , , , , , ,
  • Heiki

    Hello

    im active trader
    for last 4 years its only struggling
    i wud like to trade with dark pool
    how can i find broker who offers access to dark pool?

    Thank you

smb newsletter
Options Risk Disclaimer    Forex Risk Disclaimer

1. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a number of products and services, both electronical (over the internet through smbtraining.com) and in person. SMB TRAINING also offers web-based, interactive training courses on demand.

2. The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.

3. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.

4. SMB Training and SMB Capital Management, LLC are separate but affiliated companies.

5. No relevant positions

6. Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

Log in | 60 queries. 1.397 seconds.