VPIN: when one side seems to know something

Sometimes the market trades like someone already knows.

Informed and uninformed flow

Picture a token an hour before bad news becomes public. Most traders are doing what they always do: a little buying, a little selling, roughly balanced. But a few accounts already know, and they are only selling. They sell carefully, in pieces, trying not to move the price before they are done. The chart still looks calm. The flow underneath has gone one-sided.

Market researchers call the first group uninformed flow and the second informed flow, and the second is sometimes called toxic: whoever takes the other side of it is systematically the loser.

One-sided volume is the fingerprint

That imbalance is the fingerprint informed trading leaves on the tape. VPIN is a way of measuring it: in one sentence, it approximates how one-sided recent trading volume has been, on a scale where higher means more one-sided. No formula needed to use it.

What a high reading does not mean

A high VPIN does not tell you which way price will go. It does not tell you that anyone actually knows anything. It says one thing only: recent flow looks unusually one-sided for this market, and moments like that have historically been livelier than average.

So we count what followed

Instead of trusting the story, EdgeDepth scans the record for every past minute where VPIN was extreme on a market, then measures what actually followed each one, forward, with the count printed next to every rate. Sometimes high readings preceded real moves. Sometimes they preceded nothing. That is the base-rate habit applied to a fashionable number, and it beats admiring the formula.

A high VPIN reading is not a direction and not a certainty. It says the flow looks one-sided, nothing more.

For how VPIN is computed and read on the terminal itself, see VPIN · flow toxicity.

See it live

See extreme VPIN readings counted on live markets.

Related: Order flow · Base rates