The stock exchange is a very intuitive place for any investor. We know how the stock indexes play a major role in deciding the fate of the stocks listed on the exchange. But what if we tell you that there is a dark pool where there is no account of trading intentions before execution? Yes, there is a place that lacks complete transparency with no records thereof, and this is known as the dark pool. This is where the dark pool index or dpi for stocks comes in handy for making decisions.
The DPI for stocks is the measure to identify the market sentiment. Higher the DPI, the stocks are bullish. And lower the DPI, the stocks tend towards bearish sentiment. But the dark pool has its benefits and shortcomings. So, let us have a look at the pros and cons of DPI.
Advantages and disadvantages of DPI
Following are the advantages of DPI while investing:
- There are no exchange fees thereby, reducing the transaction cost associated with the investment.
- Getting beforehand knowledge of stock surge as information is spread in the dark pool before exchange. So, the DPI will indicate the market sentiment for any current stock.
- Lack of transparency ensures that the trading intention will not be visible before execution.
- A better chance for investors to buy big without being vulnerable to high-frequency trading.
- Facilitates block trading by investors and get good bid on large orders.
However, the DPI also has some prominent disadvantages when compared.
- There are no order books available.
- The lack of transparency may lead to disputes and conflicts.
- Hogging on to adverse situations indicates that your purchase stock price may not be the best bid.
Having said that, you must be thinking why is there no regulation on the dark pool? There were limited regulations for a while but due to the recent HFT scam controversy, the Securities and Exchange Commission has introduced several protocols to regulate the dark pools.