Posted by on Jun 9, 2017 in Uncategorized |

Questions pertaining to the authenticity of the Fincrowd app and the usefulness of dark pools are tricky and hard to answer. There is always contradicting evidence and players who believe in the usefulness of both Fincrowd app and dark pools will vociferously argue their case and fight against any bans and regulations that might be placed on them.

If we understand the advantages and disadvantages of dark pools probably we can make an informed decision on whether to trade or not.

Advantages of dark pool

  • Minimal impact on the market: The very reason for the birth of the dark pool was to reduce the market impact. As a result, there will be no financial repercussions unless there is an information leakage.
  • Reduced transaction costs: Unlike regular trading where transaction costs are high due to the involvement of exchange fees, in dark pools, the costs of the transactions are lower as there are no exchange fees involved.
  • Can be used by everyone: Though initially it was aimed at only institutional investment, nowadays many dark pools are allowing smaller orders from small traders. Since the execution orders have come down they plan to increase liquidity which will result when the market is flooded with several participants and a surge of orders at varying prices.

Disadvantages of dark pool

  • The actual market rate is not reflected: If a company sells its stock in dark pools, it makes a profit but the novice investor will lose money as the market does not reflect the actual price which will change when the knowledge of the sale becomes public.
  • Don’t know the other participants: In the dark pool when you sell your stocks you will not have any knowledge of who the other participants are and if they will be interested in buying your stock. There is a lot of risk and volatility involved here.
  • You might not get the best price: The lack of transparency can work for and against those trading in dark pools. On the flipside, you can never be sure you got the best price.
  • Delay in filling orders: Since you don’t know who the participants are and if what you want is there or not there will be a delay in filling orders, unlike the open exchange. And in matters of trade time is of the essence.

The final verdict

Contrary to common belief, dark pools are not the Black market but are highly regulated bodies. It is mandatory for all dark pools to be registered with the Securities and Exchange Commission and the Financial industry regulatory authority. Their accounts are regularly audited just like any other exchange. So, it is a very individual take on whether you should trade via the dark pools or not.

Read More