A Dark Pool is a privately organized financial forum or exchange for trading securities. Dark pools are typically used by institutional investors and other large traders to buy and sell shares anonymously, without the interference of high-frequency traders. By using a dark pool, these investors can avoid exposing their intentions to the market and thus reduce the risk of price manipulation.The use of dark pools has surged in recent years as concerns over high-frequency trading have grown. Critics argue that high-frequency traders have an unfair advantage over other investors because they can see order flow and react faster than others. This allows them to profit from small price discrepancies between different markets.Supporters of dark pools say that they provide liquidity to the market and allow large investors to trade without revealing their intentions prematurely. They also argue that high-frequency traders actually improve liquidity by providing more competition for orders.Critics of dark pools, however, argue that a lack of information about the activities of dark pools distorts stock prices by preventing other investors from knowing what trades are taking place. They also claim that the lack of regulation around dark pools leaves them prone to manipulation and fraud.As the SEC begins cracking down on high-frequency trading, it is likely that they will also scrutinize the activities of dark pools. High-frequency traders are already in their crosshairs, but dark pools may be next.
