Yet, this condition does not imply that the forex markets are immoral or that the top players have somehow gained inside knowledge over retail traders. Usually, the market makers such as central banks and financial institutions tend to use their sheer size to impact the market. So, in order to understand and measure the performance of these capitals compared to the investments of retail traders. Thus, many investors build their own strategies depending on this concept. It aims also to focus on the relationship between retail and institution investments.Īs we stated earlier, smart money refers to the capital that banks and financial institutions control. In order to have a higher opportunity of achieving profitable trades and taking advantage of smart money, retail traders should align their way of thinking and trading with those institutional investors.Ī smart money trading strategy is a simple system that tends to keep traders updated about the general market conditions. At a certain level, smart money investors will start to make profits by taking advantage of the higher prices and beginning to sell the currency back to the retail traders (uninformed ones). The Forex smart money traders can then increase the price of the underlying currency at some time in the future. Thus, smart money traders will be able to move the market whenever they want.įor instance, when the Forex market conditions seem favorable. In a way, by buying aggressively to remove the floating supply of a currency, they will put the market on that FX in a phase of accumulation. Trading smart moneyīy applying the same logic to our main approach “smart money concepts Forex”, we will understand that the market makers (big players) try to create similar conditions. When prices drop, we will see buyers (bulls). To explain further, if prices rise, then sellers (bears) will show up. Hence, we can conclude that the price movements, either up or down, will affect the market equilibrium. Conversely, the lower the price of an FX currency pair, the lower the supply. Rule of supply: the higher the price of an FX currency, the higher the supply.In contrast, the lower the price of an FX currency pair, the higher the demand. Rule of demand: the higher the price of an FX currency, the fewer the demand.To clarify, we all know that like all financial markets, the Forex market is based on the universal rule of supply and demand rules. Indeed, the overall idea of the smart money concept is based on the fact that with an understanding of market psychology as well as being able to deal with large position sizes, the banks, and the financial institutions can manipulate the Forex market. Hence, it helps to comprehend where the retail traders are being manipulated, and where smart money ( big players ) are entering or exiting. That is where the smart money concept comes in handy. Thus, Forex retail’s mindset is the same across all currency pairs. So by returning to our main subject ” smart money concepts in Forex”, we can tell that in every market we can find retail traders as well as institutions. In other words, we can consider smart money as the amount of money invested by Banks levels and institutions with a great knowledge of the Forex market, which retail traders cannot approach. That is why market actors describe them as “market makers”. They are the players who are consistently correct about the market. Nevertheless, banks and big institutions trade forex currency with higher volumes than retail traders. That has enough volumes and liquidity to manipulate the market. In fact, this category of traders includes Central Banks, Hedge Funds, Big Interbank, and global companies. These smart money traders can easily influence volumes and prices in the live markets. Those important players are mainly “Banks” and “Institutions” with a huge force of money. To further explain, smart money refers to a group of actors in the Forex market that has the ability and the power to move the price market. Smart MoneyĪctually, smart money doesn’t consider a trader’s intelligence as more as it refers to its impact on the market. In fact, to understand the main idea behind this concept we should first learn about “Smart Money”. Smart money concepts Forex defines a general approach when trading currencies.
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