subject: What Is Stock Market Didden Orders [print this page] What Is Stock Market Didden Orders What Is Stock Market Didden Orders
During the 80's there was a videotape called "The Billionaire Boys Club" (BBC) based on a true story. The motion picture had a particularly interesting scene at the La Brea tar pits in LA California. The participants of the club ended up murdering somebody and disposing them in the tar pit. Since there is oil and tar in the La Brea tar pits is very hard to find anything in there. This is very similar to equity dark liquidity of today. It is a black and murky environment with various types of order types.
The most notable characteristic of a dark pool are orders that our not displayed to the marketplace. Buyers and sellers enter orders that are not displayed to the public onto an electronic order book. They are either trying to hide their identity, order size, or side of the market that they are on. There are variations of the order types in dark pools but in general they are hidden.
The biggest benefit of dark pools is hiding what you are doing. This can create less slippage on the order execution so that other orders don't jump in front of your order. You can also do large orders and not show it. This is similar to playing poker and not showing your opponent what you are doing or your intent. Also, some of the execution rates are cheaper than other venues this is another reason why they are so popular. Another benefit of some of these dark pools is the type of order flow in that particular dark pool. Some pools have institutional, retail, day trader, or high frequency trader type of order flow. Every dark pool has its own niche and specialty.
Being that the order book is not displayed anywhere, dark orders in the book may not get filled as fast as displayed markets. Since the orders are in the dark they are not protected by Reg NMS. Displayed orders are protected by Reg NMS. Dark pools also attract a more professional type of trader. Some of these traders ping the dark pools to try to figure out if there are any large orders there. They also try to figure out what side the large orders are on; buyer or seller. In general dark pools have lots of gamers gaming each other.
To access these dark pools most exchanges and their smart routers have various order types that go dark. Some of the smart routers route and post completely dark . But in general most are routing to the dark markets and the displayed markets.
The equity markets of today have a very interesting market structure in that some liquidity is hidden in the dark. In these various dark pools there are different types of order flow, benefits, drawbacks, and different ways to access them. Before leaping into the dark always know the dark pool characteristics.
