‘Dark pools’ are growing in number and depth, accounting for around 12% of all US stock trades, reckons consultancy Tabb Group. The label covers any share trade conducted directly between investing institutions, such as banks and hedge funds, rather than via a regulated exchange, such as the London Stock Exchange.
One big advantage is secrecy – there is no requirement to publish details of dark pool trades, as there would be at an exchange. Another is the possibility of faster trades and better prices, particularly if the deal is large.
But critics argue that the existence of dark pools makes it more likely that those who trade via exchanges – such as most retail investors – will unknowingly miss out on the best prices.
• See Tim Bennett’s video tutorial: Why you should worry about dark pools.