Term · Liquidity & Trading
Dark Pool
In briefA dark pool is an execution system in which orders are not fully visible in advance. For small-caps it can be analytically relevant because of low visible liquidity and the market impact of large orders.
Definition
A dark pool is a trading venue or execution system in which orders are not fully publicly visible before execution.
How it is calculated
Formula. No standard formula; relevant are execution quality, volume share, and price reference.
Why it matters for small caps
Dark pools can be analytically relevant for small-caps because of low visible liquidity and the possible market impact of large orders.
Common misreadings
- Dark pools are frequently judged negatively across the board, even though they can also reduce market impact; execution quality is decisive.
In the process
Frequently asked
What is a dark pool?
It is an execution system with hidden order book depth. Buy and sell interest remains largely invisible before execution.
What are dark pools used for?
They allow large orders to be executed without moving the market in advance. Relevant here are execution quality, volume share, and price reference.
Are dark pools inherently negative?
No, they can even reduce the market impact of large orders. Decisive is the actual execution quality, not the blanket judgment.
Related terms
Sources
Primary
EUR-Lex – MiFID II, Richtlinie 2014/65/EU
https://eur-lex.europa.eu/eli/dir/2014/65/oj
https://eur-lex.europa.eu/eli/dir/2014/65/oj
Methodology
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.