A dark pool is a private financial forum or exchange for trading securities that allows investors to make trades without exposing their intentions to the public. Unlike traditional stock exchanges where buy and sell orders are visible to all participants, dark pools keep this information concealed. This anonymity helps large institutional investors execute sizable trades without causing significant market impact.

Dark pools function by matching buy and sell orders internally, rather than routing them through public exchanges. When an investor places an order in a dark pool, the trade details remain hidden until after the transaction is completed. This process helps prevent the price slippage that can occur when large trades are disclosed publicly, which might otherwise lead to adverse price movements as other market participants react.

These private exchanges are typically operated by major financial institutions, including banks and brokerage firms. They provide a way for large traders, such as hedge funds and pension funds, to buy or sell substantial amounts of securities discretely.

While dark pools offer the benefit of reduced market impact and lower trading costs, they also raise concerns about market transparency and fairness. Critics argue that the lack of visibility in dark pools can create an uneven playing field and may contribute to market fragmentation. Despite these concerns, dark pools continue to play a significant role in the modern financial markets, accounting for a substantial portion of equity trading volume.