Foreign exchange is one of the most competitive markets, if not the most competitive one when it comes to trading a financial product. In this case, the financial products are the currency pairs listed by the broker and one can make a profit based on the difference between the entry and exit price of a transaction. In order to know when to buy or sell, traders use forex signals.
Why are forex signals important?
The forex broker will always list two prices for a currency pair: the bid and ask price. These prices are being obtained from liquidity providers that have access to the interbank market and selling can only take place at the bid price, while buying can only happen at the asking price. If a trader sells a currency pair, it is being said that he/she is taking a short position on that currency pair, and if the market is indeed moving to the downside, that short position can be closed. By closing a short position, the broker is automatically buying the same volume in order to square it.
The difference between the ask and the bid price is called a spread and usually, this is a markup that the broker adds for its services. As Internet coverage expanded aggressively in the last years, online trading has become more and more popular and anyone with a good connection now can sell or buy on leverage using a forex broker. Trading the foreign exchange market has never been easier. The problem with it is that out of the whole five trillion a day forex market, retail traders make up about five percent of that volume. Moreover, out of those five percent, no less than ninety-five percent of the people are losing money. This happens for a lot of reasons, like not having enough time to monitor markets, not being able to cope with the stress, or simply not being prepared. For the reasons listed above, forex traders started to look for forex trading signal providers.
What is a forex trading signal provider?
A forex trading signal provider is an entity (a company or just a person) that offers tips for trading the forex market, with clear trading setups that contain the entry level as well as the take profit and the stop loss. For these trading signals, the provider asks for a fee to be paid, and this is usually starting from a couple of tens of dollars and can go up to over one hundred, depending on the performances and the package one subscriber chooses. Even when trading the signals generated by a signal provider, the trader still has some degree of involvement, depending on the services he/she paid for, or no involvement at all.
Forex signal providers types
Depending on how the actual signal is being generated, signal providers are being split into different categories, and below you have the most important ones.
We will go into detail about free and paid signal providers. Which one you need depends on your experience and what you want to achieve.
Free automated copy services
There are signal providers that allow traders to directly copy their trades into the trader’s account and this is being made automatically via a trading software that copy the signals and mirrors them in the trader’s linked account. This is being made in a blink of an eye and with no latency or slippage and trading, size is adjusted to the size of the trader’s account.
If for example, the one that provides the signal trades one lot and this represents only 1% of the signal’s providers account, then the same percentage will be used when trading the volume in the trader’s account.
From this point of view, rules are pretty straight forward and all is good and fair. There is a drawdown to this, though: the trader blindly follows someone else’s trades without knowing the actual reason for it and if that trader is not providing signals anymore, everything goes down the drain.
There are some trading signal services that allow copying other trader’s trades for free, and there’s no trick in advertising that. The trick comes when one is actually trying to do that as traders are finding that they can follow those signals only if they open a trading account with some specific broker/brokers.
This is being made via affiliate links and represents the main source of income for these companies. Basically, the company that offers the trading signal service it is offering it for free, but in reality, it represents only an intermediary between the actual traders that take the trades and the followers that copy those trades into their trading accounts.
Paid forex trading signals providers
Another category of signals providers for the forex market is made up by companies that offer buy or sell signals for a monthly fee. These companies hire traders based on their historical performance and offer different subscription packages based on the trader’s interest. What is interesting about these trading signal providers is the fact that each trade is being followed up by a chart or a trading setup that explains the reason for the trade, together with the take profit and stop loss orders, why they are placed where they are placed and so on. This way, the trader is actually not only blindly following a trade, but has the occasion to actually learn something from these trading setups.
A Basic package will have access only to the actual trades, and these are being sent either per email, SMS, Twitter, or other fast messages software. Entries will be made either at the market or using pending orders and the time horizon for the trades may differ from a few hours to a few days or even weeks, based on the time frame the trade is being generated.
Other packages can be called differently, like Premium or Platinum packages, and they will have some add-ons that the provider thinks are valuable and the subscriber might be interested in. Some of other benefits that can be offered are:
- Video analysis explaining the reasoning for taking trades, what are future market expectations, how to interpret the fundamental news, etc.
- One-on-one coaching, where traders have the chance to actually learn how to trade.
- Bigger time-frames analysis based on historical prices.
Above are listed only o few of the possible things such a forex trading signal provider might offer, but actually there are multiple possibilities here. The more options one chooses for, the more that respective package will cost. Some providers have from time to time promotional campaigns and these are a great way to reduce some of the subscription costs.
Traders that do know what forex trading means and what the implications when trading forex markets are, will always choose for a subscription period that is more than a month long. No one can be profitable one hundred percent of the times and this is a reality. Therefore, when choosing such a trading signal provider, look for a period of three to six months to be able to grasp the full potential of those signals.
When compared with the free automated trading systems, the traders that opt for these signal providers have the advantage of learning by doing or seeing the trading setups and the analysis that stand behind. This way, in time, if traders are serious about trading in general, in time will have an idea about trading setups and in the end, will have bigger chances of survival in such a competitive market like the forex market is.
How to pick a good forex signal provider?
This industry is full of scams as you should very well know by now. I’m not talking about the forex industry here, but about the forex trading signal providers.
Everyone claims to make a profit, but how do we know for sure that this is a true information? Websites can be built making them looking like the signal provider is in the business for quite some time and in reality, this may not be true.
Here are some things to consider before choosing a forex trading signal provider:
- Performance. Any disclaimer will say that past performance is not indicative of future success. I agree with that completely, but it does offer a pretty good idea of what to expect in the future. Therefore, look for historical performance, ideally more than twelve months back in time. This is important as maybe the signal provider that has a historical less than twelve months just got lucky for the past year and in the next period will blow everything up. If performance is not clearly stated on the website or is not provided on request, simply skip that provider as it means it has something to hide. When you hide something, usually this is not a good thing you want to keep people away from seeing it.
- How trading signals are sent. This is important as it may come with additional costs on top of the monthly subscription. If they are sent per SMS, you need to provide a valid phone number and in doing that you have to accept the full disclosure of your personal data, etc. You know, things that people are not very comfortable giving away that easily.
- When signals are sent. What is the trading session/sessions that are covered as if the trading signal provider is trading in the Asian and London session and you live in the United States or Canada, then this service is of little or no use to
- Promotions. Always ask for promotions, no matter if they are not listed on the website. You’ll be surprised to find out that good prices can be offered especially for first timers.
- Avoid free stuff. Free-trials, like seven days free trial or something similar, should be avoided at all costs. Not that is not good that a signal provider will let you test the service. This is perfectly fine. The problem comes from the fact that the best signal providers are NOT offering such a thing and you want to trade with the best, right? So if something free is being offered… keep looking.
- Learn, learn and learn some more. Look for the overall offering of the trading signal provider to have a learning component in the subscription package you’re opting for. The more you learn, the more you’ll be able to stand on your own feet later and trade independently. There are trading signal providers that offer Private Mentoring programs for the one who is interested in learning to trade and be able to have the same performance. This is by far the best way to invest your money into something trading related rather than just following some signals.
- Ask for discounts. Trading signal providers are splitting their subscription on a monthly, three months and a six months’ basis. If you like what you see after trying the service for a three months’ period for example, then ask for a discount if you chose a bigger period, like twelve months or something. You’ll get it most likely!
Summary
The overall idea of this article was to bring in light some aspects regarding forex trading signal providers, pro’s and con’s, what to look for, what to avoid, and, in general, if it is better to use them or not. Definitely, the whole industry is complete with these services around and above all the learning aspect should prevail. Otherwise, learning by doing is a costly process, more than the cost of paying a “tuition” to someone for skipping the hardest part and learn directly from the source.
However, trading with a signal provider doesn’t suits everyone. There are traders that simply do not understand that trading involves losses as well and because they’re paying a subscription fee it is mandatory for each and every month to be a winning one. That is not correct and having this kind of expectations will only disappoint you. Markets are not travelling all the time and forex market is spending most of the time in consolidation, believe it or not.
To sum up, there are more positives than negatives when it comes to trading with forex trading signal providers if one knows what to look for and what to expect as an outcome.