What Is Smart Money?
The Smart money refers to investments or transactions made by expert investors, who have a comprehensive understanding of financial markets.
Smart Money deserving it’s title because they can identify or foresee trends before others.
Who is Smart money
Smart money can be market mavens, funds, institutional investors, central banks and others. Smart money also refers to the collective force of big money that can move markets. In this context, the central bank is the force behind smart money, and individual traders are riding the coattails of the smart money.
More background
There is little empirical evidence to support the notion that smart-money investments perform better than non-smart-money investments, but is is somewhatnatural, dy definition of the money. Smart are those who regularly see market trends before others do, those groups migh change ;)
Originally the term, “smart money” comes from gamblers that had a deep knowledge of the sport they were betting on or insider knowledge that the public was unable to tap into. The populace perceives the investing world to be similar. So also here the smart money is invested by those with a fuller understanding of the market or with information that a regular investor cannot access.
Dumb Money
Dumb Money or Stupid Money refers to investors who are not able predict investment trends, i.e. those who try to ride the trend after the smart money has already made most of its profit.