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We all know Wall Street “insiders” hold a lockbox of their best ideas and tools… so they could get the upper hand on everyday traders like you and me. 

There is a dirty little secret on Wall Street — alternative trading venues known as dark pools. You see, mom and pop traders typically trade on exchanges such as the Nasdaq or New York Stock Exchange (NYSE)…

However, many don’t have a clue about these private exchanges that the elite are privy to.

Sure, we may not be able to trade on them… but the thing is, there is a wealth of information embedded in these trading venues — allowing us to legally follow some of Wall Street’s brightest minds and profit from their massive bets.

So what are dark pools, and how can we use the information to our advantage?

 

There Is Hidden Information In Dark Pools…

 

Dark pools are private exchanges — sometimes referred to as private trading venues. These exchanges are generally the ones only the elite have access to. That’s right, if you’re a trader who uses E*Trade, TD Ameritrade, or Robinhood… chances are you won’t be able to trade on the dark pools.

That’s a bummer, especially when nearly 40% of the volume is traded on these alternative exchanges. Not only that, there are dozens of dark pools out there…

How many are there?

Well, according to the SEC, there are more than 40 approved private exchanges. This is where Wall Street banks, hedge funds, and other massive players love to place their bets.

Of course, you’re probably wondering — why do financial institutions prefer trading through dark pools over traditional exchanges?

There are a number of reasons… but I’ve nailed it down to just a few:

  • They can trade in the shadows. Since dark pool trades are conducted off major exchanges, the only way you’ll know about the trades is by subscribing to a service that flags down block trades. This allows the “smart money” to trade “anonymously” because they can hide their trades from a majority of traders.

    However, I actually subscribe to that information because it provides me with an edge. Of course, I figure out where these financial behemoths are placing their bets… and follow suit.
  • Large institutions don’t have time to push buttons and blast orders all day. Dark pools offer so many benefits… but one of the major benefits of dark pools is they allow the funds to trade large blocks of volume without disturbing the market.

    You see, on a traditional exchange, you see quotes displayed with bid-ask prices, but the market makers (mainly algorithms these days) are typically too afraid to display a lot of shares on “the book.” After all, a news story can hit at any second—they don’t want to get caught off-guard.

Now that we know why financial institutions love to use dark pools… let me show you how the information works in action. These Wall Street fatcats do everything in their power to hide their trades… and dark pools have been one of the “best” places, so they think.

What the well-informed elite probably don’t know is even though their trades are anonymous on dark pools, traders can still figure out their every move. While it’s true we don’t know exactly who’s behind the massive block orders going off in dark pools every single day…

We can still figure out how many shares they want to buy and at what price.

Let me show you exactly how I use dark pool information to my advantage.

Check this out…

 

Source: Bloomberg

 

That’s an example of a massive block trade that went off in BBBY. A whopping 500,000 share position worth $6.75M.

Someone was loading the boat with BBBY shares… this trade went off ahead of a catalyst event and the “smart money” probably thought it was going to run up into the expected event… or they may have had access to non-public information.

Who knows?

All I knew was the order flow told me the stock could explode higher.

I actually spotted that block trade in real-time… and piled in. Here’s what I sent out to my clients…

 

 

I use the options market to trade off dark pool information because they offer massive profit potential in the shortest time possible.

Just a few hours after I placed the trade… the options exploded and I locked in an 83% return on half of my position.

 

 

Now, I wanted to hold onto the rest to try to juice some extra returns because it was pretty much a freeroll for me. Worst case scenario, I would stop out and still lock in a massive winner…

 

 

That’s why I love to use dark pool information… and it may have been Wall Street’s best-kept secret for a hot minute… but not anymore.

 

Author:
Taylor Conway

Taylor’s Shadow Trader system allows his subscribers to tap into the hidden corners of Wall Street and to capitalize on “dark pool” trading activity. This powerful "follow the big money" strategy uncovers large trade activity that most regular investors have no access to, but that Taylor’s subscribers receive alerts about. Starting with a small account and trading part time, Taylor rapidly built his personal trading millions using his own proprietary trading systems. Sharp, savvy, and highly driven, Taylor looks for profits in any market condition, bull or bear.

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