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Strategies & Market Trends : The Final Frontier - Online Remote Trading

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To: TraderAlan who wrote (11916)	5/4/2007 6:33:58 AM
From: TFF	of 12617

Dark Pools and the Tactical Side of Trading David Miller Feb 02, 2007 1:51 pm The term “dark pools” refers to pools of trade liquidity – usually bids and offers in considerable size – that are not posted on any publicly available market quote system. Private firms aggregated these questions outside of the exchanges with the hopes they can be crossed by private firms. An article in the January 29, 2007 issue of Advanced Trading provides as good an explanation of this growing phenomenon as I have seen. Mutual funds and hedgies have long had a problem of having their orders jumped. Let’s say a fund wants to buy 100,000 shares of XXYZ, which is currently trading $25 by $25.25. If they float the whole 100,000 into the visible market at $25.25, you can guarantee that ask will be yanked and run to $25.50. If there is demand in size, sellers will seek to run the ask up and make more money. This “slippage” or “market impact” is a significant cost of doing business for large investors. The larger you are, the larger the impact. Large investors have turned to dark pools where they can display their desired transactions in a manner that reduces slippage. These trades are reported to the “public” markets as a done deal without the size bid/offer ever contributing to the publicly available price discovery process. minyanville.com advancedtrading.com

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