Dark Pool Trading, or printing, is an OTC (over-the-counter) blockchain transaction through a private exchange that is only available for institutional investors. These private exchanges are known as “dark pools” due to a lack of full transparency. According to the CFA institute’s report, the popularity of dark pools continues to grow, with an estimated 50 percent of all stock trading in dark pools in 2022 compared to 40 percent in 2017.
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Dark trading network in the crypto market
Digital currencies have become one of the mainstays of the global economy in recent years, and most of the tools and strategies used in traditional financial markets have also found their way into the cryptocurrency market. Dark Pools were also one of the trading facilitators in traditional financial markets such as the stock market, which entered the crypto market.
Dark transactions in the cryptocurrency market are decentralized and are called “Decentralized Dark pool”. Some online digital currency platforms provide such transactions for large cryptocurrency market investors.
These platforms use rigorous digital security verification protocols to secure transactions. They also use the proof zero-knowledge protocol to verify the accuracy and transparency of the ongoing blockchain transaction. This protocol carefully verifies and confirms their digital identities in full compliance with the blockchain privacy policy and the protection of information and data of the parties to the transaction.
One of the issues provided by a dark pool trading in traditional markets is the possibility of infiltration by one of the parties to the transaction in order to change the price in advance. Yet, in the decentralized type of these transactions, it is not possible for any person to influence to change the transaction figure and the predetermined rate will not be manipulated in any way.
Due to the confidential nature of this network, trading in this network can prevent severe fluctuations in the cryptocurrency market, as when a big investor decides to buy and sell digital currency; the release of the news of this transaction affects the market and changes its standard trend. These sudden changes can be detrimental to cryptocurrency traders and micro-investors. Failure to publish heavy trading news will prevent such fluctuations.
How do dark transactions work?
The dark trading system in various financial markets, such as stock exchanges, allows institutions to buy and sell in the financial market such as securities and their derivatives or other similar instruments without disclosing trading details and is a substitute for normal trading on the stock exchange as well as the other financial markets.
This trading system is called Dark Pool, which means “black pool”. In a non-transparent trading network, transaction information is not recorded in the market registry and these exchanges are not exposed to the public. In a nutshell, we can say that the trading network is not transparent and the history of transactions is not made public.
The liquidity in circulation in these exchanges is called “black pool liquidity” and transactions in these networks are generally done in blocks. Block trades are high-volume trades and predetermined amounts.
Why tracking Dark Pool Trades is crucial for Traders?
Understanding dark pool prints is critical to identifying futures market movements, changes in trends and levels of support and resistance.
The dark pool prints of the pool indicate the progress of future market movements:
This is especially true for key indicators such as SPY. Archival, SPY dark pool prints are a powerful indicator of major future market movements. The pattern of multiple large trades with bullish characteristics has predicted very large upward fluctuations in the whole market and the opposite pattern has predicted major recessions.
Also, dark Pool prints can indicate the beginning of a trend or a change of trend:
These prints have been just as powerful in showing the start of a trend or booking for each tick. The pattern of several large trades with ascending characteristics on a tick with other descending characteristics can indicate a change in the trend, or the same pattern can indicate the beginning of a trend in a one-off, otherwise, side trades are made.
Accumulation of dark pool printing can identify levels of support and resistance:
Tracking the price level at which dark pool prints are traded over time helps identify support and resistance levels. If a tick is declining, identifying large dark pool print stacks below current prices reveals support levels that may occur in reverse. The higher the trading volume at that price, the stronger the support level. The same is true for large accumulations above current prices. The price with the highest accumulated volume can indicate the level of resistance at which the tick may stabilize and reverse.
Finally, dark Pool prints provide a complete picture of market value:
Without a complete picture of dark pool prints, traders may end up paying too much for a stock. Consider the retailer in the example above who was unaware of a large dark transaction that would affect stock prices if traded through the public stock exchange.
How to track dark pool trades?
There are many simple tricks you can use to indirectly detect activity in a dark pool. As a trader, you cannot really look at the pools themselves. However, you can see the traces of their trades in the public markets.
It’s a bit like looking out the window to see how much the wind is blowing. The wind itself is invisible, yet you can indirectly measure its presence by watching the leaves blow around.
Based on expert experiences, there are many simple tricks you can use to indirectly detect activity in a dark pool. As an investor, you cannot really look at the pools themselves, but you can see the traces of their trades in the public markets.
An easy method to detect dark pool activity is to monitor the internet. Financial journalists are constantly competing to cover big institutional deals. Also, they are not easily distracted by something like a private computer network.
If you do not trust journalists, you should set up Google Alerts for various mutual funds and other institutional investors. They are ultimately required to disclose all their transactions, even if sometime later. By making sure you are the first person to know about dark trades, you can surpass them in money-making.
Conclusion
As we mentioned above, a dark pool can have problems as well as benefits. The system gained a lot of popularity only in the first years, but over time, with the dark dimensions of black pools, institutions and investors tried to stay away from the network for greater stability and security of economic exchanges and financial markets.
However, the dark pool trading network is still in place and, as we mentioned, it has entered the cryptocurrency market. In the world of digital currency, the terms of these transactions are somewhat more favorable, more secure, and more logical. Since large corporations do not have a large share of the market, crypto dark pool trading is not thriving at the moment. We have mentioned many times that the black pool is suitable for large and large transactions; so it is better to use cryptocurrency exchanges to do your trading deeds.