Front Running and Dark Pools

Question 1

Large Order Definition

Answer 1

An order is large if its volume is large relative to volume at the best prices.

Question 2

Front-Running

Answer 2

By knowing that there is a large buy order coming into
the market, people will buy first (either with limit or market orders) with intentions to sell when the price has risen.

Question 3

Dark Pools

Answer 3

Arose to handle the issues with traders wanting to trade large amounts (if the buyer wanted to buy a large quantity of a stock etc).

A dark pool is a privately organized financial exchange for trading securities, without publicly revealing the traders’ intentions while searching for a buyer or seller until a trade happens.

Let’s say there was already a seller(s) waiting in the dark pool that wanted to sell y>x units. In this case, trader A buys x units. Trader A learns that there was a seller(s) willing to sell at least x units (but does not learn exactly how much was available). After this match, there will
still by y-x units available for sale in the dark pool.

Question 4

Polling Dark Pools

Answer 4

Ascertain how much liquidity is available.