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Published:
February 23, 2015

Dark Pools and High Frequency Trading For Dummies

Overview

A plain English guide to high frequency trading and off-exchange trading practices

In Dark Pools & High Frequency Trading For Dummies, senior private banker Jukka Vaananen has created an indispensable and friendly guide to what really goes on inside dark pools, what rewards you can reap as an investor and how wider stock markets and pricing may be affected by dark pools. Written with the classic For Dummies style that has become a hallmark of the brand, Vaananen makes this complex material easy to understand with an insider's look into the topic.

The book takes a detailed look at the pros and the cons of trading in dark pools, and how this type of trading differs from more traditional routes. It also examines how dark pools are currently regulated, and how the regulatory landscape may be changing.

  • Learn what types of dark pools exist, and how a typical transaction works
  • Discover the rules and regulations for dark pools, and some of the downsides to trading
  • Explore how dark pools can benefit investors and banks, and who can trade in them
  • Recognize the ins and outs of automated and high frequency trading
  • Because dark pools allow companies to trade stocks anonymously and away from the public exchange, they are not subject to the peaks and troughs of the stock market, and have only recently begun to take off in a big way. Written with investors and finance students in mind, Dark Pools & High Frequency Trading For Dummies is the ultimate reference guide for anyone looking to understand dark pools and dark liquidity, including the different order types and key HFT strategies.

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    About The Author

    Jay Vaananen is a senior private banker with many years of experience advising clients in their investments across all asset classes. He is also a popular university lecturer and regular commentator in all matters regarding banking, finance and investing.

    Sample Chapters

    dark pools and high frequency trading for dummies

    CHEAT SHEET

    Dark pools and high frequency trading (HFT) are contentious subjects in financial markets. Billions of dollars are traded through dark pools, and HFT algorithms with just small, incremental price differences make billions of dollars. And it all can happen in milliseconds. Most importantly, dark pools and HFT are part of the current market environment.

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    Articles from
    the book

    Dark pools have grown to be a major part of the global equity markets, and they’ve become a real competitor and alternative to traditional stock exchanges. Many investors are confused about dark pools because of rampant rumors, which isn’t surprising. Just the name is enough to put fear into anyone who takes an interest in them.
    It’s a risky market out there, no doubt about it. Dark pools aren’t transparent (the clue is in the name), which raises many questions and concerns as to what is going on when an investor sends an order out to the market. Many dark pools have faced fines or are the targets of ongoing investigations and fines from regulators, which hasn’t helped the cause of dark pools.
    If you're buying or selling shares then you'll inevitably be routed through a dark pool at some point and your trades may well be executed there. Your broker's expertise and the services that he provides are now one of the most important parts of your investment process. Figure out what you want to do with your investments and what type of relationship you need with a broker.
    Dark pools and high frequency trading (HFT) are contentious subjects in financial markets. Billions of dollars are traded through dark pools, and HFT algorithms with just small, incremental price differences make billions of dollars. And it all can happen in milliseconds. Most importantly, dark pools and HFT are part of the current market environment.
    High frequency trading (HFT) requires speed quicker than the eye can see. With superior speeds, high frequency traders are able to react to news faster than market participants with inferior speed, because computer algorithms are able to analyse and produce trading instructions faster than a human can manually input an order.
    Much of what happens in the markets nowadays is automated, including the time when news is released and how orders are matched and reported. Many trades are now being transacted via computer algorithms and programs. Consider this development as market evolution, because the trend to automation is only natural.
    Having a grasp of the fundamental traits of a high frequency trade helps you spot where the high frequency traders are operating and what tactics they're using. The more knowledge you have of the tactics and trading strategies used by high frequency traders, the better equipped you will be to avoid becoming their prey and receiving poor trade executions.
    Dark pools are simply venues or conduits where stocks are traded. Think of a dark pool as a platform where all sorts of players — or, as the pros like to say, market participants — come to trade stocks. Unlike traditional stock exchanges, those market participants trading in dark pools have little idea of whom it is they’re trading with.
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