Large dark pool prints

777 · Nov 28, 2016

Is there a way to follow dark pool prints in a timely manner and know if they were buys or sells?

OddTrader · Nov 28, 2016

http://moneymorning.com/2014/04/22/how-high-frequency-traders-use-dark-pools-to-cheat-investors/

How High-Frequency Traders Use Dark Pools to Cheat Investors

By David Zeiler, Associate Editor, Money Morning • @DavidGZeiler • April 22, 2014

High-frequency trading (HFT) has an evil cousin: dark pools.

While dark pools are not inherently bad, the abuse of dark pools by high-frequency traders has made it easier to exploit everyone else in the market, and increases the odds that a market downturn could quickly become a stock market crash.

So what are "dark pools," anyway?

Dark pools are off-exchange platforms that allow large investors, such as hedge funds and pension funds, to trade stocks anonymously. Dark pools arose in the late 1990s from a desire by these big players to conduct large-scale trades without tipping their hand.

Dark pools allow large investors to establish or exit positions in a stock at the best possible price. There was nothing wrong with that; the dark pools made up a very small portion of daily volume and made it easier for big investors to trade.

But a few years ago the high-frequency traders realized they could use the dark pools to their advantage…

Dark Pools: You're Either Predator or Prey

High-frequency trading uses speed to discover a trade before it happens. It allows the HFT computer to execute a trade before the original buyer or seller can. When the original trade does get executed, there's an HFT operator on the other end, who benefits from the price being changed by a penny or so.

But the more trades the HFT operators can "see" – no matter where the trades happen – the better high-frequency traders can predict the direction of any given stock.

Getting into the dark pools lets the HFT operators detect what big institutional investors were doing in addition to what was going on in the conventional exchanges like the New York Stock Exchange and Nasdaq. This helped HFT operators make even more money.

Also making more money were the companies running the dark pools, some of them investment banks like Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS). They charged the HFT operators fat fees for access to the order flows coming through their trading platforms – and weren't shy about peeking at it themselves.

But the big institutional investors, and to a lesser extent everyone else in the markets, were getting burned, losing on every trade.

"The dark pools are a shady proposition," said Money Morning Capital Wave Strategist Shah Gilani, who witnessed the early days of HFT and dark pools as a hedge fund trader in the late 1990s. "The order flow is the game. The Big Banks trade against it, too."

Driven by HFT, dark pool trading has increased from about 16% in 2008 to 40%.

The dangerous intertwining of dark pools and HFT features prominently in the Michael Lewis book "Flash Boys," which has set off a sharp debate over whether such activities should be legal.

"The hidden passages and trapdoors that riddled the exchanges enabled a handful of players to exploit everyone else," Lewis said in his book.

And everyone is at risk…
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Sig · Nov 29, 2016

777 said:
Is there a way to follow dark pool prints in a timely manner and know if they were buys or sells?
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Every securities transaction requires a seller who sells to a buyer. What do you mean by "if they were buys or sells"?

MagicMike · Nov 29, 2016

You can see how much of the daily volume was dark pool buy/sell on this site: https://squeezemetrics.com

I canceled all my other subscriptions and just use this now.

Anyone who claims to know if a big print DURING the day is buy/sell motivated is a fraud I think... I've tried that before and it doesn't work. Maybe its possible but I don't know. The end of day stuff is real...It works.

777 · Nov 30, 2016

"Anyone who claims to know if a big print DURING the day is buy/sell motivated is a fraud I think..."

Does anyone disagree with this?

Sig · Nov 30, 2016

777 said:
"Anyone who claims to know if a big print DURING the day is buy/sell motivated is a fraud I think..."

Does anyone disagree with this?
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How can you disagree with the concept that every transaction consists of a willing buyer and seller!

MagicMike · Nov 30, 2016

Sig said:
How can you disagree with the concept that every transaction consists of a willing buyer and seller!
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To be fair... most trades are trades with market makers and markert makers are not exactly buyers or sellers. So most trades - while they do have willing buyers and sellers- are not simply two people agreeing that they want to trade at a given price due to opposing information.

I think this is what 777 is getting at. We want to know when a buyer is buying because of a conviction about future price...

Sig · Nov 30, 2016

MagicMike said:
To be fair... most trades are trades with market makers and markert makers are not exactly buyers or sellers. So most trades - while they do have willing buyers and sellers- are not simply two people agreeing that they want to trade at a given price due to opposing information.

I think this is what 777 is getting at. We want to know when a buyer is buying because of a conviction about future price...
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If it's a big enough trade to make a difference to anything than its not just a market maker going about their business. A market maker who takes on a big one sided position would only do so if they had a conviction about something, and they probably know the market better than their counterparty. In any event, markets are by design anonymous and dark pools even more so, how could you possibly expect to know which side the market maker was on?

MagicMike · Nov 30, 2016

Sig said:
If it's a big enough trade to make a difference to anything than its not just a market maker going about their business.
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broker-dealers will take client orders (big ones) onto their own books or givre them to a liquidity provider of some kind (this is a trade) in order to split them up and move them to the market... would you not call this makoing a market? It involves really big significant orders.

Sig said:
A market maker who takes on a big one sided position would only do so if they had a conviction about something
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a conviction that they can eventually neutralize their position, yes

Sig said:
In any event, markets are by design anonymous and dark pools even more so, how could you possibly expect to know which side the market maker was on?
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don't know, but people do it. https://squeezemetrics.com/monitor

777 · Dec 5, 2016

Does anyone have knowledge about HFTAlert.com?

They claim to have their own handle on dark pool activity and order flow

They use what they call accumulator and delineated information

I am skeptical but like listen and learn