How Smart Money Trading Works

Institutional Smart Money Trading

Your eye into institutional forex

Who is “Smart Money”?

Smart Money refers to the biggest and smartest players in the game. They are the central banks, the market makers, and the institutional investors. They are the entire Interbank Market; Deutsche Bank, Citigroup, Barclays, UBS, Bank of America, HSBC, BNP Paribas, and Goldman Sachs. They have an overwhelming influence on the financial markets, which is why the Smart Money will always prevail.

What is Smart Money Trading?

Smart Money trading refers to the use of institutional trading strategies which are aligned with the perspectives of Smart Money.

Institutional Smart Money trading is superior to any retail trading strategies on many levels. This do not mean retail trading strategies do not work at all. It just means Institutional Forex is more powerful and more accurate than anything the retail market offers. Smart Money naturally has more access to knowledge and resources than retail traders or “Dumb Money” to their disposal. Tracking smart money investments will give you the true narrative and what to expect of price in the markets.

Stop Hunts Explained with Smart Money

You’ve probably experienced this if you’ve been trading for over a year. Price moves against your directional bias, hits your stop loss, then reverses to your initial direction. This is called a Stop hunt. Stop hunts are a way for the Smart Money to get into their positions at a better price. They will lead you one direction, manipulate price to stop you out, then absorb your position. This will happen to you over and over again until you learn the concepts of Institutional Forex and how to see things in the Smart Money’s perspective.

Institutional Trading Forex vs. Retail Trading Forex

Institutional trading strategies in Forex are not very commonly found in the online world of trading Forex. Smart money trading strategies are one of the best kept secrets in the world of currency trading. Every beginner trader who is looking to get involved in trading Forex, often starts researching online for educational content and Forex courses, or someone willing to show them the ropes. Unfortunately, most of the educational platforms and trading material out there in the Retail trading world is completely useless. That is not to say there are no profitable traders in Retail world of trading, there are. However, the majority are not because they are simply following the herd. The majority of Retail traders are stuck in a cycle of doom to the point where they either quit, or discover Institutional trading. Once you discover Institutional trading and learn how Smart Money place their orders, you can implement these concepts to your own style of trading and see tremendous results.

How to Learn Institutional Trading

Institutional trading, or smart money trading is mastered by those fortunate enough to find a Mentor willing to teach them these concepts. These concepts are often discovered by professional traders through years and years of market findings. They are not written in any book nor taught in the classrooms. Institute Trader, the instructor for the Smart Money Mentorship was one of the lucky individuals to study under one of the best in Institutional Forex. He further took the institutional knowledge he had learnt and developed his own smart money trading concepts. It is an honour and a privilege to be working with him.

The Interbank Market

The Interbank Market is the currency market where the really big and smart money is changing hands. It is the top-level foreign exchange market where the biggest participants in the game such as JP Morgan, Deutsche Bank, Barclays, Citigroup, HSBC, Goldman Sachs and other major banks exchange different currencies. They are the Smart Money and this is their game, we’re just here to play it.

The Interbank market will provide the Bid and Ask prices for each currency pair at any given time the currency is bought or sold (even if there are no buyers or sellers), acting as Market Makers. These big banks are responsible for approx. 70% of the daily volume on the Foreign exchange market.

Smart Money Trading Interbank Market and The Herd

Retail Market (The Herd)

On the other side of the interbank market, you have the retail market, and the retail traders. If you are reading this, you are most likely part of this group. We are market participants too, but we’re the little guys.

We are also small sized financial institutions like banks, hedge funds, Forex brokers, day traders, and speculators. Anything outside of the interbank market can be considered the retail market, or the herd. The interbank market will try to match all buy and sell orders of the herd, however in reality there is always an imbalance of buyers and sellers. With this imbalance, the interbank market is used so each buy and sell order has a counterparty to get executed, acting as a liquidity provider.

Smart Money Trading Retail Market is Net Long

When Retail Market is Net Long then the Interbank Market (the Smart Money) is Net Short in the FX Markets

Smart Money Trading Retail Market is Net Short

When Retail Market is Net Short then the Interbank Market (the Smart Money) is Net Long in the FX Markets

The Relationship between the Smart Money and the Retail Market

When the retail market is net long, the smart money is net short and vice-versa. When the retail market is net short the smart money will be net long.

As a day trader in the Retail Market, we are trading AGAINST the major banks (AKA Smart Money)

Now do you see why retail traders are at such a disadvantage? Now do you see why they call us “Dumb Money”? Now do you understand why learning how Smart Money operates and how institutional trading strategies will further your success?

If so, you might want to check out our Smart Money Mentorship where we teach beginner to advanced concepts of Institutional Forex trading.

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