If you are an investor or likely to become one, you must know about the dark pool index for stocks. Some investors also refer this to as a dark pool of liquidity. This is so because the exchanges lack transparency leading to conflicts of interests among the owners and traders. It began in the 1980s and has become seemingly popular accounting for around 40% of the stock market.
The dark pool index for stocks is a measure of calculating the dark pool indicator, or DPI. The measured value is converted to dollar-weight and published as the dark index on the stocks.
Now, the question is whether to invest in them or not? Well, for any beginner, this dark pool for stocks is like a swamp where you might end up in a pickle. But if you use the right tools and have a correct vision, you can generate a whooping wealth in no time. However, the money-making structure also depends on the type of dark pools you are sticking to.
Types of dark pools
More than 50 pools are registered but we can categorize them into broadly three segments:
- Dealer-owned – the pool is set up by large investors with the proprietary trademark. The investors are mainly brokers and dealers. Now, the prices are derived from the order flow into the pool. More the inward flow, better the price.
- Exchange-owned – the price discovery is not there as they are derived directly from the exchanges. So, these dark pools act more as agents than principals.
- Electronic marketer – Independent operators offer this type of dark pool and operate their accounts. So, there is no middleman to look after stocks but there is a state of price discovery.
So, if you are looking for securities trading and become an institutional investor, then the dark pools are the place to go.