Education & Tips

What Are Dark Pools?

No. They are not a pool with no lights. Let's shine some light on these dark exchanges. (Last Updated 8/22/2022)

What Are Dark Pools?

What Are Dark Pools?

Before explaining Dark Pools, it is important to first understand what a Block Trade is. I promise, we will come back to the dark pools in a bit.

What Are Block Trades (Equities)?

Equity Block trades (not to be confused with Option Block Trades) are privately negotiated trades that typically involve at least 10,000 shares of a stock (excluding penny stocks). Most block trades are actually significantly larger than the 10,000 share count. 

Due to the capital required to execute a block trade, it is very rare that an individual investor can make block trades. Most Block Trades comprise of smart money whales like large hedge funds and institutional investors who buy and sell large quantities of shares through various methods. These methods include utilizing investment banks, offline purchase agreements, or by utilizing other intermediaries known as Block houses. 

Block houses specialize in executing large trades to avoid market volatility. Because of the large volume of the trade, if executed normally on the public market, the trade itself would impact the price of the stock so much that parts of the order would often get filled at less desired pricing. When using the Block Houses, the block house will break the larger order up into smaller orders with multiple brokers (similar to Sweeps) to help mask the overall volume of the trade to avoid raising alarms and increasing market volatility. 

These days, most of the institutions have moved from standard Block trades to executing these trades on Dark Pools. 

Ok… Back to dark pools. So what are they?!

Dark Pools are private exchanges only accessible to institutions for executing large orders away from the public market. Initially, Dark Pools were primarily implemented to execute large block trades. Today, approximately 40% of all institutional trades take place on Dark Pool exchanges and the average lot size of the trades has dramatically decreased. Large dark pool orders are important because they can often act as support and resistance by showing what price levels institutions are moving money in or out of a stock. 

The main advantage of utilizing dark pools is very similar to the block trades mentioned above.. Getting their large orders filled without causing a large fluctuation in price while also not tipping off the markets that someone is buying or selling such a large quantity. If this information was made public, it would cause an additional high influx of volume on the underlying equity/stock and further increase the volatility on the price before completely filling the order. By reporting the trade AFTER the entire trade is executed, the trade's size has less of an impact on the market. 

Institutional investors use the dark pools because they do an even better job of concealing their intentions from the public than the standard Block Trades and help to avoid causing spikes in volatility that would otherwise occur if the trades were executed on the public markets. It’s important to note that there is no public order book for dark pools so the institution’s trading intentions are not released to the general public. In fact, dark pools are not even required to report the executed trade immediately.

While most Dark Pool transactions are reported to FINRA within 10 seconds after the transaction is complete, there are instances where the reporting is delayed for as long as up until the next trading day. That means that the reporting of the trade can sometimes be delayed 24 hours (or longer if the trade was executed leading into a weekend or holiday). 

For trades that took place on the Dark Pools between 8PM and 8AM EST, reporting must be submitted by 8:15AM EST as a Form-T filing. 

To better illustrate how these dark pool transactions work... let's illustrate it! 
Dark Pool Transaction Illustrated.
Dark Pool Trade Examples

Dark Pool Signature Prints

Have you ever noticed Dark Pool prints coming in on symbols like $SPY, $QQQ, $IWM & $DIA at price levels that were never touched that day? Whether the price was higher than the day's high or lower than the day's low, it is clear these trades did not occur today. These trades are called Signature Prints (Late Signature Orders). Signature Prints are dark pool trades that utilize a loophole by routing the order through European trade desks to enable them to report the trade about 24 hours after it is executed. Signature Prints are primarily traded on SPY, QQQ, IWM & DIA. WhaleStream detects these and adds a Signature Print marker on the order. 

Signature prints can add additional insight into market extremes to help spot where corrections could potentially start or end. When a much greater number than daily average of signature prints start coming in, it can indicate that institutions are anticipating a large move. 
To help determine the side, you can compare the trade’s price to the current day’s price. Because Signature Prints often get reported a day late, it is not uncommon that the equity hasn’t even traded at the reported price during the current trading day.  This can provide further insight into the intentions of the trade. If the price is currently trading HIGHER than the equity print levels, that can indicate they had BULLISH intentions. If the price is currently trading LOWER than the equity print levels, that can indicate they had BEARISH intentions. 

With Signature Prints, you can often predict when a correction or end of correction may be coming because you will start to notice a larger than normal influx of Signature Prints start coming in. This usually leads to a big move. 

**It is very important to note that Dark Pool trades have ONE buyer and ONE seller. Both the buyer and the seller are smart money institutions, so the intent is unclear. One institution thinks now is a good time to sell, while the other institution thinks it’s a good time to buy. 

How to utilize dark pools in your trading?


If you are seeing large trading volume in the dark pool and can’t determine the direction, you can utilize a strangle. Time is your friend. Give yourself some time to allow for the anticipated move to take place and try to stay closer to the money. Try to keep your contracts even in value (if your calls cost $3, your puts should cost $3). Read more about strangles here: 

Compare Dark Pools Against Option Flow

Alone, dark pools don’t provide much insight into the direction. This is because there is a buyer and a seller and both sides are smart money institutions. However, with WhaleStream you can cross-reference dark pool data against the Option flow to get a much better idea of the sentiment of the dark pool orders. If you see large prints coming in on AAPL, and you see that the sentiment on the options side is bullish, it is a good indication that smart money thinks there will be a bullish breakout. 

Rare or New Trades

If you start to see new tickers popping up on the dark pools that don’t often see a lot of action in dark pools, this can indicate that institutions are starting to build long positions. You can compare the size of these orders to the daily volume. If a dark pool order is greater than 20-30% of the daily average, it is definitely worth paying attention to. 

Using Dark Pool Prints as Support & Resistance

Pay close attention to the prices that the dark pool orders are being executed at and where the current underling stock is trading. Oftentimes, large dark pool prints can become levels of support and resistance. Our new Trade X-Ray pre-plots those large dark pool prints on the underlying chart for you to quickly analyze and identify those key levels. 

If you have additional dark pool trading strategies that you’d like to share, please reach out to and we would love to hear from you!

Sign up for WhaleStream to get access to the Real-Time Option Flow & Dark Pool/Equity Print Dashboard. We display Dark Pool Prints along-side options flow to help provide a clearer outlook on what is happening in the market.

Dark Pools are a form of ATS (Alternative Trading System).
From FINRA: 
"An Alternative Trading System (ATS) is an electronic execution venue that acts much like a stock exchange but is not an SRO. That means ATSs, like exchanges, bring together multiple buyers and sellers. But unlike exchanges, ATSs do not have members (an ATS has "subscribers") nor do they take on regulatory responsibilities. An ATS may trade listed stocks, like an exchange, but an ATS may also trade unlisted stocks (often called OTC equity securities) or fixed income securities, such as bonds, unlike an exchange.

Although not themselves SROs, ATSs are regulated by the SEC under Regulation ATS. Under this regulation, an ATS must be operated by a broker-dealer that is a FINRA member. As a result, ATSs are also subject to applicable securities laws and regulations, including, for example, rules on disruptive or manipulative quoting and trading activity, and to oversight by FINRA.

Regulation ATS also imposes additional requirements on ATSs, including rules relating to the protection of confidential trading information, and, for ATSs that trade large volumes of securities, fair access and systems requirements. ATSs trading listed stocks are subject to heightened disclosure requirements, and the SEC publishes those disclosures—submitted on Form ATS-N—on its website.

Dark Pool" is an unofficial term often used to refer to an ATS that is not lit, meaning it doesn't publicly display pre-trade quotation data the way exchanges do. While dark pools are not required to publish quotations on their platforms, all ATSs—including dark pools—have a regulatory obligation to report information about trades that occur on their platforms.

All trade data for listed stock transactions occurring on ATSs, including dark pools, must be submitted to a FINRA Trade Reporting Facility (TRF), and it is published on the consolidated tape along with trades occurring on exchanges. Transactions in unlisted securities also must be reported to FINRA. Firms must report trades in unlisted stocks to the FINRA OTC Reporting Facility (ORF) or trades in fixed income securities to the FINRA Trade Reporting and Compliance Engine (TRACE)."

Although FINRA receives the reporting of the trades and publishes those trades to the SIP's consolidated tape immediately, FINRA doesn't post all of the aggregated Dark Pool trades on their site for free until 2 weeks later. WhaleStream has access to the consolidated tape and provides the dark pool trades 15 minutes after they are reported. 

We will continue to update this page with more info soon! 

Last Updated: 8/22/22

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