Some cool posts of discussion I gotta be a part of
My understanding.. Dealers face this very problem. As price moves away from market value, they don't know who is informed and who isn't. The only way is for them to trade with an informed client asap (who takes advantage of their mispricing) to which they'll change who they distribute liquidity to based on their new knowledge.
My mind works the other way around.. I tend to believe sharp moves are the 'uninformed' trading if nothing has changed with the percieved value. Yes, retail position sizes are smaller but if there's a lack of liquidity and an abundance of one-way orders that demand it, price will move that way. Think a group of uninformed (stops/breakout traders for example) that all put in market orders.
If prices reflect current values then trading would be random since price is not over or underpriced and no one would be able to profit from informative trading. The most efficient markets are ones that move randomly. But ya, thats a whole other topic of discussion.
The terms may be misleading because each of us have a different definition of the terms.
I agree, the small informed retail trader is not a threat right now, but how long of informative trading will it take for him to become a large informed trader..
A dealer would have to trade with an informed to know who he is, BUT a dealer isn't going to put out a $1B for an ask size and get thier inventory rocked. Instead, they may offer a very large size and see who chomps on it. By doing so they can then move their next offer size and/or price to compensate for their potential risk exposure to yet a another 'informed' trader on the same side of the market.
DislikedHow do we "know" (once again I say this.. we will never know) if it is informed traders or uninformed traders? Let me show you how I view this and this is obviously 100% wrong but I need to clear my psychological issues as Darkstar says.Ignored
My understanding.. Dealers face this very problem. As price moves away from market value, they don't know who is informed and who isn't. The only way is for them to trade with an informed client asap (who takes advantage of their mispricing) to which they'll change who they distribute liquidity to based on their new knowledge.
DislikedLet's say we have a sharp move up from nowhere like 30-40 pips, how do we know if it's informed traders moving the market?
In my mind 100% of the time it would be an informed trader, because no uninformed trader would have that kind of money (this may sound stupid but think about it.. if you're uninformed, that means you are usually uninformed therefore you lose and if you lose you do not have money) so the move will be caused by orders just as you say however, it will be caused by an informed trader.Ignored
Disliked"Random" is a word invented by people to describe irrational and unpredictable behaviors. Randomness doesn’t really exist in nature. Every thing can be explained even if we don’t know the explanation for it.Ignored
DislikedCorrect me if I'm wrong but....
In the end are the words "informed" and "uninformed" misleading?
In my understanding an informed trader is simply one who poses a threat...Ignored
I agree, the small informed retail trader is not a threat right now, but how long of informative trading will it take for him to become a large informed trader..
A dealer would have to trade with an informed to know who he is, BUT a dealer isn't going to put out a $1B for an ask size and get thier inventory rocked. Instead, they may offer a very large size and see who chomps on it. By doing so they can then move their next offer size and/or price to compensate for their potential risk exposure to yet a another 'informed' trader on the same side of the market.