Market Impact
Whilst it is safe to say that trading on a dark venue will reduce market impact, it is very unlikely to reduce it to zero. In particular the liquidity that crosses when there is a transaction has to come from somewhere—and at least some of it is likely to come from the public market, as automated broker systems intercept market-bound orders and instead cross them with the buyer/seller. This disappearance of the opposite side liquidity as it trades with the buyer/seller and leaves the market will cause impact. In addition, the order will slow down the market movement in the direction favorable to the buyer/seller and speed it up in the unfavourable direction. The market impact of the hidden liquidity is greatest when all of the public liquidity has a chance to cross with the user and least when the user is able to cross with ONLY other hidden liquidity that is also not represented on the market. In other words, the user has a trade-off: reduce the speed of execution by crossing with only dark liquidity or increase it and increase his market impact.
Read more about this topic: Dark Liquidity
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