Dark Pool Clues

🕵️‍♂️ What Are Dark Pools and Why They Matter

• Dark pools are private trading venues (including internalizers) where large blocks of shares are bought or sold anonymously.
• These trades don’t appear on lit exchanges (like NYSE or NASDAQ) until after execution, and sometimes not at all if internalized by market makers.
• They’re used to minimize market impact, especially during volatile periods or when institutions want stealth accumulation.

📊 Clues That Dark Pool Activity May Be High

While exact volumes aren’t disclosed in real time, here are some signs that dark pool buy orders may be dominating:

• Price Flatlining After a Sell-Off: If the stock drops sharply and then stabilizes without bouncing, it may indicate buying interest is being absorbed off-exchange, preventing visible upward pressure.
• Low Lit Exchange Volume vs. High Off-Exchange Volume: You can check FINRA’s ATS (Alternative Trading System) Transparency Data or Rule 605/606 reports from brokers to compare dark pool vs. lit exchange activity.
• Lack of Bid Support on the Tape: If the Level 2 order book shows thin bids but the price doesn’t drop further, it may suggest hidden liquidity is supporting the price.

which firms would be in charge of algos that can flatline the price like that? And would it be them using internalizers to absorb buy orders?

Firms like Citadel Securities, Virtu Financial, and Jane Street are among the most prominent players using algorithms and internalizers that can absorb buy orders and influence price behavior—including flatlining after a sell-off. Yes, internalization is often used to quietly absorb retail order flow without impacting public exchange prices.

Here’s how it works and who’s involved:

🧠 Who Controls These Algorithms?

The firms most associated with high-frequency trading (HFT), internalization, and algorithmic price control include:

• Citadel Securities: One of the largest market makers in the U.S., handling a massive share of retail order flow through internalization. Known for sophisticated algorithms that manage liquidity and price stability.
• Virtu Financial: Another major HFT firm that uses internalizers and dark pool access to execute trades with minimal market impact.
• Jane Street: A global trading firm active in equities, ETFs, and options, often using proprietary algorithms to manage order flow and pricing.
• Two Sigma, Jump Trading, Hudson River Trading: These firms also deploy advanced algorithms and may act as internalizers depending on their broker-dealer relationships.

🏦 What Is Internalization?

• Internalization means a broker routes your order to a firm (often a market maker) that fills it from its own inventory rather than sending it to a public exchange.
• This allows the firm to absorb buy/sell orders without moving the public price, especially in low-volume or after-hours trading.
• Internalizers often promise “price improvement”—executing trades at slightly better prices than the best available on lit exchanges—but this can also mask true demand or supply.

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