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Discussion Starter · #1 ·
I notice on my TDDI trade confirmations that quite a few of my recent trades were filled in "TriAct MATCH Now", a dark pool:
https://www.tdsecurities.com/tds/content/CM_FAQ?language=en_CA

As I understand it, the dark pool is a marketplace where trades are matched, but the size and price of orders is not revealed (unlike an open market like the TSX or Alpha where you can see orders from others). The big problem here is lack of transparency. It's not an open market, and you can't see details of trades.

My concern is, am I getting the best fills possible in this dark pool? Do Canadian regulations ensure this? What I'm concerned of is that I may be deprived of a better match in an open market because TD routes me to the dark pool, possibly to serve their own interests.

http://www.investopedia.com/articles/investing/060915/pros-and-cons-dark-pools-liquidity.asp

This page says that prices in dark pools can diverge from the public market, e.g. the price may be lower in the dark pool because big institutions are dumping shares secretly. Doesn't this mean that I can be getting ripped off in the dark pool, if I am the person they are selling to?
 

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I look forward to reading answers from those in the know.

For my part, I think you are ok if you are entering limit orders. It shouldn't matter who you transact with, as long as your conditional price is met.
 

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Discussion Starter · #3 ·
I always use limit orders, but there's more to fair fills than just obeying the limit price. The limit price is the worst price you will accept but sometimes there is a better price.

I want to make sure I'm getting that better price, if it exists, even if the brokerage sends me to a dark pool. What I don't want is to be sent to the dark pool and be deprived of the opportunity to fill at a better price in the public market.
 

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I'd also like to hear from those who are familiar with these dark markets.

The TD info page suggests that this is advantageous to the client but other sites suggest that these dark pools may primarily benefit large institutional investors, not retail clients.
 

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The problem is that of potential systemic suppression (or up-lifting) of the price. If the true market demand for a stock (whether to buy or sell) were to be known widely (ie: there was a single venue for trading), then buyers and sellers, on a real-time basis, could evaluate the depth of the order book (buy or sell), and make their decisions accordingly.

With the true order book withheld from the market, and only the near bid/ask portion of the book visible, its not entirely clear if the true equilibrium price is reached.

Real estate, for instance, is very illiquid. Very few properties are truly identical, so it is very hard to evaluate what the true market demand is on a given piece of property. As a result, the spread between the true fully liquid market-clearing price, and the actual transaction price can be quite large, for both buyer and seller. Sophisticated players, such as Realtors, can take advantage such by acquiring properties they unduly judge to be cheap, and re-sell them at higher prices. Thus the market is not efficient.

In stocks, where you have highly liquid markets, the return on such activity is minimal. But if you have a chunk of the order book not revealed, then there is certainly a lot of opportunity for those with knowledge of the 'dark' order book to engage in arbitrage. Thus transactants are likely to see value lost to spreads.

Since a good chunk of stock buys these days are institutional in nature (ie: share buybacks, mutual fund trading, etc.), the potential for dark pool operators to engage in arbitrage between the public and private venues, and to rebate a commission personally to the executives is significant.

As an individual investor, I doubt you're being ripped off by more than a penny or two unless you trade some relatively illiquid stocks. However, lots of pennies can add up to pretty serious coin if you're running one of these exchanges and engaging in arbitrage between the two platforms. TD might, by routing orders to the alternative platform, save you 1 cent, but you might have saved 2 cents over the execution price if there was a unified market without dark pools.
 

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The TD info page suggests that this is advantageous to the client but other sites suggest that these dark pools may primarily benefit large institutional investors, not retail clients.
The idea that TD might act in an altruistic manner is hilarious.

The markets are gamed in a way that disadvantages day traders and HFT. For buy and hold people who use limit orders and observe a 5+ year investment horizon, I believe there is extremely limited impact.
 

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Simple solution is to always set a price. The only time you could get ripped off by dark pools is if you buy/sell at "market" price, something I've never done personally.

It only takes a few seconds to enter the buy/sell price and then you know what you'll get. I often set my buy price lower than the market and usually manage to pick them up on the minor fluctuations that happen quickly during the day. I don't tend to sell, but I imagine the same would happen in reverse as long as I was in the correct range.

There is no way to "maximize" the prices...

Trading at "market" means you trade at whatever the next block sells for. Setting a price means you trade when the price is met. I can't think of a way where you could say trade at a set price unless I can get a better one...but then my crystal ball is broken. The best you can do is trade at the price you want.
 

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When certain conditions exist, I will leave a buy limit order open for a long time (like a month) at a price well below the prevailing market price. Over the course of the last several years, those orders have filled a few times.

It's really weird to look at both the yahoo feed and the TDDI long quote and see a low price for the day that is a lot higher than what I paid. I'm talking about buying at $0.05 or even $0.10 lower than the quoted low for the day.

I've thought about what it would be like to be on the other side of that. What if I submitted a sell at market and received a price below the lowest recorded trade for the day.

To me, attempting to make money from the stock market is like going to a back alley crap game in a strange neighbourhood and thinking you have a chance of winning. The deck is stacked against you.

Again, this is only my opinion but my goal is to make money from the companies I own, not from trading on the stock market. The market is just a necessary and useful evil.
 

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I don't think you can be certain if your getting the best fills there is just to much corruption out there. Think about it the first lady Hillary Clinton made something like 100 fold on trading cattle futures in about 10 months. The job of the Clintons was to make sure the law of the land is followed in the country that was the financial center of the world @ the time. Many think her trades were switched with other trades to get better fills which resulted in her huge gains.
 

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I always use limit orders, but there's more to fair fills than just obeying the limit price. The limit price is the worst price you will accept but sometimes there is a better price.

I want to make sure I'm getting that better price, if it exists, even if the brokerage sends me to a dark pool. What I don't want is to be sent to the dark pool and be deprived of the opportunity to fill at a better price in the public market.


sorry, i do disagree with the above. When an investor sends a limit buy order, he's entering into a contract with a middleman in which he agrees to pay X number of dollars for a specific, highly defined asset at a specific price.

there's nothing in the contract that says he's entitled to a piece of whatever other undisclosed deals the middleman happens to be working on.

using limit orders is excellent armour against predatory practices. Sorry again, but i wouldn't accept the above definition, that a limit price "is the worst price you will accept." To me, a limit price is the very best price an investor can create, after careful research & after taking the pulse of the market.

we can't see into the dark room but we can get a rough infrared video of how the mammoths are moving around in there. It's an art, not a science. It's why doing what Just A Guy suggests - posting a bid to buy or an offer to sell that is highly advantageous to oneself, ie slightly outside the quoted spread - often works. The mammoths see the order & sooner or later one is likely to come out for a nibble. Or rather, send his algo out for a nibble.

many options are highlly illiquid. US options markets are full of dark rooms, so i'm used to playing close to them. They are fun! even on days when one goes hopefully to the playground with one's baseball in hand, only to discover that the mammoths are fast asleep & they have no intention of waking up today.


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Discussion Starter · #13 ·
Thanks humble_pie. Maybe I misinterpreted what a limit order is? I will go look into this. I've also posted the question to a Bay Street friend of mine and I'll share what I learn from him about the dark pools.

One thing he told me is that Canada has better regulation of dark pools than the US, because we got to watch the US experience first.
 

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jas i do maybe 200-250 trades a year, mostly options
in my entire life i have never sent a market order
always limit orders
even super-super-super liquid shares, i'll go with the B/A but the limit order habit is so engrained that i do it with these as well

.
 

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Are you saying you are seeing better than your limit fills *only* with illiquid securities?

If so, given that most of my trades are for liquid securities where it is common for me to see the fill at a better price than my limit, I find this surprising.
I am not a big trader though so maybe I am just lucky. :biggrin:

Cheers
 

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Discussion Starter · #17 ·
I have seen fills better than my limits in many cases, both liquid and illiquid securities. Since the market is often moving fast, I'll place a limit somewhere a bit away from the current price. I'm basically getting a "market" fill, with the protection of the limit as a worst case.

Example bid 12.00 ask 12.02 but the price is very volatile. I may buy with limit 12.05, and perhaps it fills at 12.01.

By regulations, the broker has to route according to NBBO (national best bid offer) so if across all the markets, the best available price is at 12.01 then I am supposed to get it, even if I've said limit 12.05.

My concern with the dark pool is I want the broker to still match me with that 12.01 if that offer is available. I don't want them to throw me into the dark pool and match me at 12.05

The limit price is the worst I'm willing to accept. The broker MUST route me somewhere to fill me at a lower price if it is available.
 

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I have bought options on SPX & SPY that have had no trades for the day & sometime for several days with large bid/ask spreads. The ask price has not moved for several hours have placed a limit order & have been filled well below the limit price I put on the table with my trade being only trade gone through for the day for that option. So the order is often going through below the price that the big boys could take from me so this makes me think the corruption if it is there might not be to bad.Though I do not think one can really know for sure because if there is corruption it is not likely to be advertised. After my order has gone through the ask price has not moved. If my order does not go through often the ask price will drop seconds after I place the order.
 

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Discussion Starter · #20 · (Edited)
Why a limit buy order at 12.05 and not 12.02?
Because in a fast moving market, a limit order of 12.02 may not fill. By the time I review the order details, hit send, and the order goes live, the best asking price may have moved up to 12.03. It will not fill.

In my experience, it can be a losing game to try hitting the bid (or ask) to the penny. You prepare the order and hit send, and the market moves. No fill. So you adjust the order and keep chasing the market... pretty annoying. There are even bots out there designed to bait you and make you chase prices, as most people feel a compulsion to hit the bid/ask to the penny. And end up chasing the ticker.

Sending the buy with limit 12.05 pretty much guarantees I will get a fill. It's effectively like a market buy order along with protection in case of a serious liquidity disruption. Because of NBBO regulations, I will get a better price if it's available across any market. The broker is required to fill it at the best price.

For me, the limit order is to protect against catastrophes such as liquidity suddenly disappearing and I end up getting filled at say 13.00 on that buy order. There is no downside (IMO) to going a couple pennies high and saying limit buy 12.05.

Oh, and the other reason is if you're buying up more shares than available at the best ask. If you're buying many shares, you might only get a partial fill if your limit buy is exactly what the lowest asking price is. You need to bid higher than the shown asking price to fully fill.
 
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