[roenxi]

And what would the problem be with that example? It seems everyone has agreed on a fair price and is trading on it. There isn't any incentive for the private traders to trade at a different price or one of them is getting ripped off due to the arbitrage potential. And they don't believe that publicising the trade would move the price or - again - one of them would have an incentive to do so because it'd move in their favour.

I don't see how I'd be disadvantaged as any actor in that scene.

[hattmall]

You are disadvantaged as an outsider because you don't know who is buying or selling and how much they are trading. You don't know the demand levels at various price points. If, for example, you want to buy Stock A which is currently trading for $5 and sell it for $6, but there is someone trying to sell 5 million shares for $5.05 but you can't see that you can't make an informed decision on ideal price points for your trade.

[Dylan16807]

> you want to buy Stock A which is currently trading for $5 and sell it for $6

It sounds like I'm asking for a pony in this scenario. I shouldn't expect to get that.

If I want to buy at $5 and hold it for more than a day, I don't think the secrecy of that big sale really affects me. It'll be over soon enough.

[nairboon]

> If I want to buy at $5 and hold it for more than a day, I don't think the secrecy of that big sale really affects me. It'll be over soon enough.

It does, it means that you could've gotten the stock for maybe $4.9 instead of $5.

[roenxi]

^_~ How? Nobody was selling it for $4.90 in that example.

[nairboon]

Although the above example was missing some details, I suspected it was meant to illustrate the following effect: The public last price was $5, so bid/ask will be around that price let's say 4.99/5.01, if you buy with a market order you'd pay approximately $5 ($5.01). But if there is a new large sell order for 5 million shares at 5.05, then the market would react to this information and adjust bids & asks. For illustrative purposes it could be possible (if the 5 million order is rather large in comparison), that the new bid/ask would be 4.89/4.91 and you'd get your shares for around $4.9.

[roenxi]

That is irrational. It suggests every time someone sees a market price at $5 they could put in an enormous fake sell order for shares at $5.05 to buy shares at $4.90 then cancel the fake order, which makes no sense. "The market" is giving away freebies in an insane way.

If the clearing price is $5 and someone puts in a huge sell order for $5.05 there is no reason for the clearing price to drop.

[infecto]

Why would volume outside of the NBBO force price down? I think you are also over weighting order book impact to price. There is definitely some information there but with its not always that meaningful.

[sfn42]

Why would lots of shares available at 5.05 cause others to sell shares for 4.90?

[infecto]

You are not disadvantaged because you are not buying 5mm shares. I like to think of it closer to volume pricing rather secret pricing. You could definitely do retail level volume on a pool but you will be paying for it and that cost will generally be higher than any "savings" you may get in price.

Its similar to complaining that someone is buying eggs at wholesales prices while you are paying retail.

[derf_]

Ask yourself: if 99% of the volume is being traded inside the house, how much easier is it to move the "fair" price in that street auction?

[infecto]

Its more like 50% of total volume being traded in dark pools. Your price argument does not make much sense though, the beauty of western markets is that folks are so opportunistic that someone will exploit any information asymmetry so your argument would not hold up. Also at the end of the day its not like buyers and sellers in a dark pool know "the price" of what they are trading, sure they have ideas of where they might be buyers and sellers but they are still using the lit market data to inform their decision.

[chii]

but people trading inside the house would know this already. If they suspect that the fair price is being manipulated, why would they continue to buy inside the house?