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⚡ Carefully! «Dark pools»: why does the market need «hidden liquidity»⠀
💰 Due to numerous myths, Friday the 13th is considered a «day of trouble», including for money transactions. We do not believe in this, but we offer to talk about one tricky «feature» that can cause beginners to have a real fear of market superstitions.
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For those who are not ready to place orders on public exchanges and inform competitors about their actions, dark pools − private trading platforms − offer a hidden market with huge liquidity. Its «opacity» gives priority to individual participants and allows you to get the most favourable prices. Everything is legal: as of February 2022, 64 alternative exchanges were registered with the SEC. Today, approximately 40% of real stock transactions are conducted through dark liquidity pools.
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For example, in the open market, selling large orders causes a price decrease due to an increase in supply. Let's say that someone decides to sell a million shares of one company, but the order, or even information about such intentions, draws too much attention to the asset. In addition, it is impossible to find a counterparty for the entire volume on a regular market, and splitting such transactions into several small orders is not profitable.
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Dark pools allow predators to manipulate large blocks of shares without spreading information that could affect the wider market. The order book of this pool is not visible to regular traders, and the order details only appear on the stock feed after a delay. Dark pools also allow participants to reduce transaction costs.
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Usually, the price of transactions in dark pools does not match the public one, which puts retail investors who are not aware of the transaction at a disadvantage. The result of «dark pool» transactions is realized in the form of gaps, spikes and other anomalous price reactions, which an ordinary trader cannot predict and control.
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How to deal with it − read the next post.⠀
Profits to y’all!