Informed Trader

Definition

Informed Trader in plain English

An informed trader is someone who knows something true about what a stock is really worth that the current price hasn't caught up to yet. Because their knowledge is reliable and not yet public, they can trade profitably — buying when the price is secretly too low, or selling when it's secretly too high. Picture someone at a garage sale who recognizes a dusty painting is a genuine masterpiece while the seller thinks it's junk: they buy cheap because they know the real value. In markets everyone else has to watch out for these traders, since trading against someone who knows more than you usually costs you.

Learn these first

• Price Discovery

Related Market Microstructure terms

• Adverse Selection
• Fundamental Value
• Glosten–Milgrom Model
• Grossman–Stiglitz Paradox
• Kyle's Lambda (λ)
• Market Maker
• Noise Trader
• Order Flow Toxicity
• Order Imbalance
• Price Discovery