Dark pools, my first article and why “black box” thinking

First of all we have to mention the next question — how we evaluate and use our mistakes for our future? Mostly, we prefer to avoid everything about this, we would like to look successful and nice. But there is a mistake. We have to be like airlines — we have to explore properly each mistake, find core issue and implement decisions and preventive mechanisms into our life. This is a way to real success, we study our life not only from achievements, but from losses as well. It’s like a some kind of trading approaches: if your config makes money — use it, if you config loses money — stop it, explore it, put it into your database, improve or skip it.

Repeat it everyday and in one year you will have a lot of PNL into your wallet =)

Okay, it was just some kind of an introduction about our mindset. I really don’t waste your time, but i hope that it was useful for you =) Few words about me and our company — I’m the man with an open mind, I believe in life long education, open world, unlimited opportunities and love extreme sports, running and reading books. Of course, I love what we’re doing! You can find “VRM” in my name. It’s name of our company. We are a prop-HFT firm, which trades a lot on the crypto market. A LOT. We also invest into third parties, such as talented trading teams and quants. SORRY for advertising — but if you know someone, feel free to PM me =) Because we are pretty involved into the market, we would like to have a look at the future. How it will be? What products will be popular?

The answer — it definitely will be proper products and solutions. And we had a look at an institutional market…

You may want to ask a question “What os this guy talking about?” You are right, I spend a lot of words for the intro. I just wanted to be in the one page with you =) Let’s have a look at dark pools!

What is this?

A dark pool, as we can see from this name, is an undisclosed / hidden substance. But we are traders, not chemists. Dark pool is a private exchange with a huge liquidity and market depth, where institutional players can make their deals without any market impact and information disclosure. Nothing transfers outside. Because of this points, we can trade there 100–200 BTC (around 1,6–3,2m$) for one trade and don’t thing that we can move market. Experienced readers can say “You can do the same deal in an OTC market” and they are right. But. With dark pool you don’t have to think about a risk of a counter party, you don’t have to discuss it with someone for finding a conclusion. You just deposit money into a proper custody and make an order. No any troubles with a negotiations process and “Human factor”.

History and role

Dark pools were existed on the traditional markets, as a solutions for making deals with a huge amount of assets without any market impact. It was supported by most powerful banks and right now, a lot of them have their own dark pools. The second reason of dark pools is a liquidity. As I mentioned before, Investors make their big trades via dark pools, because of this a huge liquidity was created. With a liquidity came more volumes. With liquidity and volumes came HFT. With HFT liquidity and price spreads were improved again. All of this point shift dark pools to the next level — important part of a market, which supports and delivers market depth and execution for any kind of institutional players — from brokers, which direct an order flow of their customers to dark pools, to banks this buy and sell billions there.

Crypto market doesn't have a developed market of dark pools yet. And this is an opportunity.

Is the crypto market next?

I think - yes. No, I BELIEVE — yes. Do you know, what is the same of crypto and traditional markets? Both of them — markets. It means that the rules and solutions should be pretty close. The second reason — an attention from institution customers. But they are not stupid to buy/sell everything in open markets. Some times they do this, but some times — not. Why? They just don’t want to move a market and face any kind of unexpected consequences. They need a proper and familiar solution, some kind of OTC markets and dark pools.

On the other hand, a demand and attention to the crypto industry from retailers drives innovators to launching their own solutions for covering this demand. How can they do this now?

The first one — they can spend a lot for creating their own solutions, invite market makers and launch their business. But it’s so complicated and risky from day zero. They can spend a fortune and a lot of time, but achieve nothing.

The second one — they can use one of cloud solutions, which are offered on the market, all of them from famous and not famous exchanges. It’s a solutions, but with a lot limitations. If they want to create some kind of unique product — they can’t. They only can use templates, which were provides bu an exchange.

In sum we can see the future and existed demands. But they not covered yet.

How can dark pools solve this issues?

On the first look, they only cover institutional demand. Do you remember? These big guys, who wants to trade a fortune per trade. Of course, it’s so important. But how about retailers? How about exchanges? How about brokers?

Of course, we can’t say that each exchange needs a dark pool. Definitely no. But the market is big and continuing grow. Small exchanges can start offering block trading to the customers, innovators can start using dark pools for creating their own trading/investmenst solutions for exchanges. Puhhh, we forgot about OTC merchants! They can change p2p markets to dark pools, and enjoy fast and secured executions and unlimited liquidity.

It definitely will be the next level of the market.

Shall we discuss risks and opportunities a bit more?

Of course YES. And we definitely do this in the next article =)

I have just finished some courses about blogging, because of this I would like to stop here, haha =) I just have keep you attention =)

Please feel free ask me about anything and suggest any ideas about themes, which can be interesting for you!

Black Box thinking. Long enthusiasm, education, open mind. Short limits, mind traps, conformism. Sense maker and leader of VRM.trade and BO.market