dark pool trading system

If I own some shares, there is nothing to stop me selling the shares directly to you, without using a stock exchange (or you selling your shares to me).

If we got other people to join our ‘club’ then again, we could trade shares with each other without using a regular stock exchange. This would effectively be a dark pool.

Obviously you and I and others like us do not hold enough shares in enough companies to make the above worthwhile for us. However, dark pool trading is effectively just as I outlined above, except that the people involved tend to be financial institutions, trading large numbers of shares.

They have only a small effect on the normal index because the trades are kept secret.

The more trading is done in dark pools, the less trading will be done on normal stock exchanges – hence less liquidity.