TradeZero, an online broker-dealer located in Bahamas, announced the launch of the first “dark pool” exchange for bitcoin to allow institutional investors executing large trades. The company is planning to open the exchange not only for bitcoin, but to ether and litecoin as well.
Private exchanges or forums for trading securities outside the exchange are called dark pools. They facilitate very large orders without impacting the market and creating adverse price movements. The share of such off-exchange trading can reach 40 percent of all U.S. stock trades.
“We are looking to provide the non-U.S. investor with the same access, tools and discounted commission structure that many U.S. traders enjoy today,” said Daniel Pipitone, director of TradeZero.
TradeZero already allows commission-free stock and ETF trading, as well as equity and index options. The current announcement means that customers will get an opportunity to make large purchases or sales without substantially moving the market price with the access to commission-free dark pool digital currency trading.
It is known that TradeZero will use a pre-existing bank for the fiat currencies but it hasn’t revealed so far the name of the bank.
For the purpose of opening dark pools, Trade Zero has partnered with Jered Kenna, one of the earliest bitcoin entrepreneurs and investors, a founder of the now defunct bitcoin exchange called TradeHill. “If you want to see larger players moving in to do larger trades in bitcoin without upsetting the market, a dark pool is necessary,” told Kenna to Reuters in an interview. “I think it will bring a lot of stability in the market as well.”
Traditionally, block trade in markets is 10,000 shares of stock, not including penny stocks, or $200,000 (£154,000) worth of bonds. According to Kenna, the minimum opening balance to trade on the dark pool makes up $10,000. “The size of the trade required to move the market in Bitcoin is considerably smaller than what traditional forex traders are used to. Naturally it depends on how fast you’re looking to accomplish the trade and current market conditions.”
When Kenna started dealing with bitcoin, he purchased the first 5,000 coins for 20 cents each (to compare – now bitcoin is traded at $589). He also offered a dark pool at his exchange TradeHill but couldn’t fund a bank to act as custodian.
Bearing in mind recent Bitfinex hack, security should be in focus of attention for anyone dealing with bitcoin exchanges. Kenna commented the situation: “I unfortunately don’t have all the details on the relationship between Bitfinex and BitGo and what happened behind the scenes. A key BitGo feature allows their clients to set various limits for withdrawals that can then be manually overridden. This prevents an unusually high number of coins from being withdrawn without approval. If they were using this correctly, I doubt we would have seen such a high amount stolen.”
TradeZero necessarily contacts customers if something beyond the preset limits occurs. It can be inconvenient, but provides the highest level of security.