Informed Trader Detection

Informed Trader Detection is the methodology used to identify participants who are trading based on non-public or superior information. These traders often exhibit distinct behaviors, such as trading in larger sizes or during specific market conditions, which deviate from the typical noise of retail flow.

Market makers use this detection to adjust their risk parameters and protect their capital. By identifying informed traders, market makers can differentiate between liquidity-seeking behavior and predatory activity.

This process often involves analyzing the correlation between trade sequences and subsequent price movements. Being able to effectively flag these traders is a key component of modern risk management frameworks in both centralized and decentralized trading environments.