PIN Model

The Probability of Informed Trading model, known as the PIN model, is a quantitative framework used to estimate the risk of trading against informed participants. It decomposes trade arrival rates into the probability of an information event and the intensity of informed trading during that event.

By observing the sequence of buys and sells, the model estimates the underlying parameters of market participant behavior. In the cryptocurrency space, this model is frequently adapted to analyze order book data to detect when informed actors are active.

It provides a structured way to quantify how much of the observed price movement is driven by new information versus noise. The model helps market participants distinguish between genuine price discovery and predatory liquidity extraction.

It remains a foundational tool in quantitative finance for evaluating the fairness and transparency of market structures.