Past the Knowledge: Hedge finances’ use of darkish liquidity looking for algos dips for the second one consecutive 12 months

Even if get right of entry to to darkish pool liquidity has looked to be an an increasing number of essential precedence for the ones at the buy-side lately, The TRADE’s 2025 Algorithmic Buying and selling Survey – Hedge Budget reported a marked decline in the usage of darkish liquidity looking for algorithms via hedge fund managers this 12 months.  

The survey published that the usage of darkish liquidity looking for declined year-on-year via 16.52% from a height of 84.52% in 2023, to 68% in 2025. 

The lower marks the second one consecutive 12 months that the tactic has dropped in reputation following the ten.52% drop to 74% in 2024. 

On the other hand, regardless of this decline, darkish liquidity looking for nonetheless stays the second one maximum used set of rules – demonstrably a well-liked software among hedge finances. 

It seems that, its decline in utilization for the second-year working has no longer impacted its desire amongst hedge fund managers who proceed to hunt liquidity past lit markets on the other hand the continuing drop is notable. May just this be a key indicator of what’s at the horizon must the fashion proceed in the similar course? 

Relating to causes in the back of the new drop in utilization, there are a number of demanding situations darkish liquidity has been dealing with lately.  

Demonstrably, the previous couple of years have observed the advent of regulatory adjustments that search to limit the volume of buying and selling that may happen in darkish swimming pools and make stronger transparency, such because the advent of Mifid II in January 2018, and the thresholds set via the double quantity cap (DVC) mechanism. 

In a similar fashion, the survey indicated the improvements in lit marketplace potency is also contributing to a discounted wish to faucet into darkish swimming pools, in addition to the possibility of data leakage in darkish markets which might act as a deterrent for hedge fund managers looking for liquidity in those spaces. 

Unsurprisingly, VWAP maintained its 2024 place as probably the most used technique, with % quantity coming in because the 3rd hottest set of rules in the back of darkish liquidity looking for. 

Learn extra – Past the Knowledge: Choice of algo suppliers utilized by buy-side sees decline regardless of persisted diversification push 

In different spaces, on the other hand, upticks in utilization had been famous, with implementation shortfall (basket) greater than doubling within the remaining 5 years, from 10.91% in 2021 to 24.67% in 2025, with the survey mentioning larger automation and multi-asset execution functions on desks as the principle drivers in the back of this expansion. 

Total, taking a look on the present state of play in darkish liquidity looking for analysed within the survey, it’s transparent that the tactic nonetheless stays a company favorite for hedge fund managers over maximum different algorithms, on the other hand the consecutive annual drops in utilization is notable, and whether or not the fashion is about to proceed depends upon a mild stability between more than a few marketplace components.