Although access to dark pool liquidity has appeared to be an increasingly important priority for those on the buy-side in recent years, The TRADE’s 2025 Algorithmic Trading Survey – Hedge Funds reported a marked decline in the use of dark liquidity seeking algorithms by hedge fund managers this year.
The survey revealed that the use of dark liquidity seeking declined year-on-year by 16.52% from a peak of 84.52% in 2023, to 68% in 2025.
The decrease marks the second consecutive year that the strategy has dropped in popularity following the 10.52% drop to 74% in 2024.
However, despite this decline, dark liquidity seeking still remains the second most used algorithm – demonstrably a popular tool amongst hedge funds.
Evidently, its decline in usage for the second-year running has not impacted its preference among hedge fund managers who continue to seek liquidity beyond lit markets however the continued drop is notable. Could this be a key indicator of what is on the horizon should the trend continue in the same direction?
When it comes to reasons behind the recent drop in usage, there are several challenges dark liquidity has been facing in recent times.
Demonstrably, the last few years have seen the introduction of regulatory changes that seek to restrict the amount of trading that can take place in dark pools and enhance transparency, such as the introduction of Mifid II in January 2018, and the thresholds set by the double volume cap (DVC) mechanism.
Similarly, the survey indicated the enhancements in lit market efficiency may be contributing to a reduced need to tap into dark pools, as well as the potential for information leakage in dark markets which may act as a deterrent for hedge fund managers seeking liquidity in these areas.
Unsurprisingly, VWAP maintained its 2024 position as the most used strategy, with % volume coming in as the third most popular algorithm behind dark liquidity seeking.
In other areas, however, upticks in usage were noted, with implementation shortfall (basket) more than doubling in the last five years, from 10.91% in 2021 to 24.67% in 2025, with the survey citing increased automation and multi-asset execution capabilities on desks as the main drivers behind this growth.
Overall, looking at the current state of play in dark liquidity seeking analysed in the survey, it is clear that the strategy still remains a firm favourite for hedge fund managers over most other algorithms, however the consecutive annual drops in usage is notable, and whether the trend is set to continue depends on a delicate balance between various market factors.