Ratigan nails how "dark pools" rip off traders: Dark pool trading = 10% of volume

Remember commissions and other charges are only one part of the actual cost of the trade. Market impact is much bigger and my experience was that market impact was minimized when we could cross in a dark pool. yes it's more expensive but I'd rather pay some fraction of a penny than do a ton of the order 8 cents under the current bid.

Quote from Mom0/pH0x:

umm no dark pools do NOT offer better pricing, they are the only venues besides BOSX(which is not a darkpool) that it actually costs for a passive entry (bid/offer)...
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we have to get rid of the term "dark pool" before continuing the argument. "Dark" has a negative connotation. we may call it "Alternative Exchange."

Those who label any buying/selling outside their casino "dark pool" are losing business, so they start the rumor and spread the rumor. I suspect the rumor was started by NYSE and Nasdaq.

This reminds me of the rumor started by American pharmaceutical companies about the drugs sold in Canada (remember drugs in Canada are much cheaper and many American citizens go across the border and buy them in Canada).

The rumor is: The Canadian drugs are unsafe! Don't use them! They are dangerous!

Well, it turns out the drugs sold in Canada are made by the same American pharmaceutical companies who started the rumor!
 
Some of you folks have been reading too much zero hedge.

Sigma X or any dark pool is not 'bad.' I have found I am able to get filled at my price more often there than arca, nyse, or whatever. And how else in the world does one expect Fido, Vanguard, etc to get their large blocks done at a decent price? So they should just put the order out there and allow the algos to jump them and drive prices, thus losing performance for their investors? It is no different than the old liquidnet,etc. And if it is a small or micro-crap stock, then the institution will simply call Jones and let them find the other side.

In short, Talon knows what he is talking about, and I agree with him.

I am no fan of GS, trust me. They DO see the order flow, and while I am no conspiracy theorist, it would be naive to believe they don't use that to their advantage and to profit from. But think more along the lines of "Greenlight Capital has been in here accumulating some of the miners...better grab some of that FCX before they lift it further."

The HFT algos piss me off simply because they are constantly jumping in front of orders with stocks that trade 3-4 penny spreads and not letting ME get a better fill by buying on the bid or selling on the offer while they play their little market maker games. But one could argue that ultimately that is better for John Q Public.
 
Quote from talontrading:

Are you a trader? How can you be so confused????

You can get time and sales from any trading platform and I think NASDAQ makes their T&S available free (archived) on their website.

You obviously have no clue about how large orders are executed. Large volume can't be limit orders????? Absolutely wrong. Large orders MUST be limit orders because large market orders are expensive (re execution cost). Large orders are split into smaller limit orders (which are not large relative to the displayed bid) and algos work them in various ways... from putting them on the bid, pinging between the bid / offer, sweeping the offers, etc... and anyone with even an IBKR account can use algos so don't even start with that lol.

HFT is not front running. That is a common misconception. Front running is flat out illegal... it happened in the pits but is extremely rare in electronic exchanges... that's not at all what HFT does. (and yeah... I've worked with programming teams on HFT algos so I do know how they work.)

So the Big Guys are so dumb they would get caught in their own HFT and they have to trade in the Dark Pools? That's how the world works? Who are they trading with? Themselves????

These types of questions are not the kind of questions a trader would ask achilles28. A lot of people trade 1 lot in futures and think that gives them an understanding of the equities market... but it's actually much more complex.

You can open an account for well under a $1M USD with a major prime broker and have access to dark pools and algos. Don't challenge me on that because been there done that too... worked for a small hedge fund with well under 500K under management that opened with a mid-tier investment bank prime broker and had algo executions with dark pool access. there are NO pension funds that don't have these tools... dont kid yourself... not everyone sits in front of their Ameritrade screen and hits the market button.

Does this make sense?
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So if Big Orders are worked off the bid/offer fine, no problems, then why use Dark Pools?

Are you an idiot?

English comprehension isn't a strength, obviously.

Please show us where near immediate Dark Pool T&S is available. Not delayed/archived. Thanks.

HFT IS frontrunning. Probing market (and hidden limit) orders for depth, then buying/selling ahead is front running. Plain and simple. Again, you're fooling yourself.

The Big Guys all use HFT and don't want to get caught in "their own" (read: OTHER BIG GUYS) HFT Traps. Are you really that slow, you can't Get that??

As far as everyone having Dark Pool and Algo "access".

Okay, granted. If all Pension funds get access to Dark Pools for 500K, that's a start. But I'm sure it's tiered access, right? Or were you bidding right next to JPM for that 1 million share block with your 300K "Timmy Sykes" hedge fund?

Just because a trader can access an algo plug-in with their broker, doesn't mean they're C+ programmers with the market skills to implement HFT. Please. That's a total red herring.

Anything that requires 400K to 1 Million to implement, isn't "Fair" or "accessible" to most investors/retailers. That's for much larger fish and gives them the advantage. It's basically like an exchange-product that costs 40K a month. You pay 40K, we show market order volume from flash-trades. That's inherently unfair because most retailers/daytraders/independent investors/and many smaller funds, don't have that kind of money to "buy" that service - either from an inside IT contractor(s), or from the exchange.

Again, you say the market is rigged. Then you claim it's "fair". Which is it ?
 
Quote from talontrading:

You have proven you aren't a trader. This is a paid service and you can get it with the $5k required to open a trading account... or actually less... just buy a subscription to something like esignal and watch time and sales.

IT ALREADY IS AVAILABLE TO EVERYONE. How can you not know that???? Who are you?!?!
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All I've "proven" is that I don't trade equities.

And you nit-pick to avoid the point.

Why not make Level 2 cost 100K a month? And volume cost another 100K, a month?

Just to clarify for you, this is a rhetorical, theoretical question intended to prove a point. Not a commentary about actual market services offered. Just so you don't go quoting me Esignal data packages for the DJIA, thanks ;)
 
I have no problem with a company like GS buy a ton of stock off a pension fund after hours. That's not the problem and should not be outlawed. The only thing that I ask is that if GS buys millions of Shares off of CALPERS I think that should be disclosed where everybody else can see it. Companies can do what ever they want. All I ask is for transparency and no lies because for free markets everybody should have the same level playing field.
 
Quote from talontrading:

1) You or I can pay and do that too.
2) They do not see the order flow first.
3) see #2
4) and the present it seems
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1) Yea, AT WHAT COST?

THAT'S THE POINT.

Its not "fair" or "accessible", if 99% of the traders/people can't afford it.

2) Yes, flash trading/HFT allows algo's to probe market-order volume, before it goes through! This is called front-running.

Why do you suppose GS flashes all those ghosts bid/offers that no one can ever fill?? For shits and giggles? WTF.
 
Quote from Mom0/pH0x:


btw: all of you guys talking as if you were authorities with your empty speculations about what happens at goldman are entertaining... i have a good buddy on goldmans equities algo desk...
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I didn't fabricate anything about GS. GS front-running is public information:

http://www.youtube.com/watch?v=O4aBf41buNw&feature=related

I hope your good buddy is not Sergei Gorbachev.

Everybody knows GS admitted front-running (http://www.youtube.com/watch?v=H-MGMaaw1s8&feature=related), but SEC chose to ignore it and refuse to force GS to return the ill-gotten profits.

This kind of ignoring behavior is routine in SEC, especially in Madoff case. For over 10 years, despite repeated warnings from the Greek guy, SEC chose to ignore Madoff's ponzi sheme.

Are you naive enough to believe that SEC really didn't know what Madoff was doing?

The fact is SEC knew it long time ago, but chose to ignore it.

ps: In Madoff case, the victims have names and are identifiable. They are putting pressure on SEC and other government agencies to get their money back.

But in GS case, the victims of front-running are not easily identifiable. That gives SEC the comfort and excuse to avoid punishing GS and taking the stolen money back and returning it to the victims. SEC is run by crooks.
 
Quote from talontrading:

I'm arguing against two things: 1) unnecessary and ill conceived regulation of the markets and 2) against this strange mentality that anyone who is making money and doing well enough to become big is corrupt and immoral.

Dark pools generally do report at time of trade or within a few seconds. I don't know enough about the mechanics to know why the prints are delayed sometimes. It's very obvious that they are delayed when there are large prints outside the NBBO. I daytrade NYSE listed stocks and no, I don't get screwed when a big order goes through the dark pools. If I go long at the exact instant a large short goes off in the dark pool the impact on my trade is exactly NOTHING. I will see the print maybe up to a minute later when it will be a strange large off market print that I know is reporting late... it won't impact the price of the stock or the outcome of my trade in the slightest. How would it? How would the daytrader get screwed?

Dark pools do not offer better pricing for volume... they minimize market impact. If someone dumps a large block of stock on ISLD and it drops the price of VLO $2 then your Grandmother's stop order working with her broker could get hit. If that same large block was crossed in a dark pool without market impact then everyone is happier, right?

It's never a level playing field... it is MUCH closer now that the markets are electronic and more of the volume is off the floor. The markets have never been better for the public than they are right now. You have no idea the kind of BS that happened on the floor and that, for the most part, is history. Be realistic... it's not a level playing field. Removing dark pools would actually hurt the public. Most HFT traders are not large banks.. they are medium sized funds or even individuals running these things at home (sometimes with colocation but not always).

There's just not a huge issue here.

i hate to get sucked into these internet arguments. I remember seeing a cartoon where the wife was asking the husband to come to bed and he said "I can't yet... someone on the internet is wrong!" So easy to get sucked into that lol.
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You're playing semantics here.

Dark Pools don't "save money" on execution.

They "limit market impact".

It's the same thing, man. Lets call a duck, a duck.

You just said a Dark Pool execution goes close to market price. Whereas, if they took the same order to market, the issue might slam 2$ (VLO) away from the price.

That saves you 1.9X$ for using the dark pool. C'mon. Seriously.

I'm not inherently against Dark Pools. The T&S is all I care about it. If two consensual parties want to transact behind closed doors at an agreeable price, fine. But that info should be made public the moment it goes through.

Under what case would a delayed TS from a dark pool execution change the market?

If the market only trades different to front run the big order, then a dark pool wouldn't have that much effect.

But we're talking volume, too. Volume info is huge. In a light market, an opposing dark pool execution could change sentiment and the trend. How could this not happen?
 
Quote from Mom0/pH0x:

that's kind of ambiguous... with all due respect, you said they were cheaper, they are not cheaper... either way, you are reinforcing you opponents point here, what you are talking about benefits institutional, not most individual traders or even prop traders...
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So what's net-cheaper?

Pay the big access/liquidity fees and trade via a dark pool? Or get front-run by the retailers/HFT'ers, and trade same size off ARCA?

talontrading is saying Dark Pools save market impact...
 
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