“Dark” means that orders are not visible in advance

In a typical order book, you can see the prices at which people want to buy and sell. Dark pool is an informal term used to refer to Alternative Trading Systems (ATS) that do not disclose such orders.

Not showing orders in advance does not mean it is illegal. Such trading systems are also regulated, and there are established reporting requirements after the actual trade.

You should not call all OTC trades dark pools

Outside of an exchange, there are methods such as ATS as well as broker-dealer internalizations. Therefore, the entire off-exchange volume is not equivalent to the dark pool volume.

Even if orders are not disclosed before a trade, records of trades for listed stocks are reported and reflected in consolidated trading data. It is incorrect to think of them as “secret trades that never appear on charts.”

Only read the fact that a large trade occurred

There are both buyers and sellers even for large-scale transactions. You cannot determine who traded, why they traded, or whether an institution is accumulating a new position based solely on the disclosed transaction size.

OTC volume and short selling volume are also different terms. First, check which trading venues and time periods the data includes, and do not interpret trading venues as signals for future prices.

Check what you have read.

• Have you distinguished between pre-trade order disclosure and post-trade reporting?
• Have you distinguished between the entire OTC market and dark pools?
• Have you confused the trading venue with whether short selling occurred?

Apply what you read to the actual screen

Try it on WAPE

Recommended for continued reading.