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This essay sheds light on what what are dark pools, explicates why investment securities are traded in dark pools, delineates the benefits of investors purchasing stocks from dark pools, and demystifies the different types of dark pools. Succinctly stated, dark pools is a term that refers private exchanges in which investment securities are traded on. As of February of 2025, the private exchanges in which investment securities are traded on are not accessible to most investors. Even though the dark pools in which investment securities are traded on are not accessible to most investors, they are, however, nonetheless accessible to certain affluent investors. In stark contrast to public exchanges that are characterized by price transparency, dark pools lack price transparency. Unlike public exchanges in which orders of investment securities on them contribute to the price discovery of investment securities, orders in dark pools do not contribute to the price discovery of investment securities. Even though orders of investment securities in dark pools do not contribute to the price discovery of investment securities, investors in dark pools can ascertain the perceived current market values of investment securities by viewing their prices on public exchanges. In January of 2025, the vast majority of the trade volume of U.S. stocks was in dark pools. Furthermore, in January of 2025, around 51.8% of the trade volume of U.S. stocks was in dark pools. It can be deduced that there is a preference for placing orders for U.S. stocks in dark pools in lieu of placing orders for U.S. stocks on public exchanges. Investors are amenable to placing orders for equities in dark pools since doing so can culminate in them receiving a "better-realized price than if the order was executed on a public exchange". Investors prefer to not acquiesce to paying overly inflated prices on their orders for equities.
