A “dark pool” is a private venue that allow for sophisticated entities to enter into trade agreements that do not reflect on the open markets. Dark Pools have their own prices, volumes, and order-books that differ from regular open market trading venues such as a DEX/CEX.
Dark Pools are reserved for market participants of higher calibers, such as UHNI (Ultra-High-Networth-Individuals), institutions, and governments. Just as in the case with any other financial tool, using Dark Pools has its pros and cons;
– No Slippage; Because trades in Dark Pools are conducted in what is called blocks; the prices and amounts of assets will not fluctuate during transactions.
– Preservation of market Sentiment; trades are totally detached from open markets and therefore are not seen by the public; in turn not impacting sentiment.
– Conflict of Interest; Due to the opaque nature of Dark Pools, the orderbooks are hidden during trades; making it worthwhile for pool operators to front run their clients.
– Long term net negative market impact; While having detached trades might not impact sentiment, it certainly does impact the overall health of the market. Everything will always become known on the market, at some point in time the market will reflect the health of the industry (no matter how much somebody might try to hide it).