Forex signal services offer traders an opportunity to receive signals for when to enter and exit positions on certain pairs. The basic concept behind a signal service is that a trader can pay a monthly fee to receive buy and sell signals, which the trader can then use to make trades on their own account.
While forex signal services aren’t necessarily a scam—surely there are a few reliable, proven, and legitimate signals companies in operation—many exaggerate their success, while overstating the benefits of their service.
Signal Service Problems
The basic problem with signal services is that the signals themselves often have to be acted on in a very short period of time.
Assume you sign up for a forex signal service company which targets small trades with profits of 40 pips per trade. As we all know 40 pips is neither a large nor a small movement in currencies. Such a movement will happen once per day on most pairs, and multiple times on many of the most active pairs.
But signals are not immediate. Some services send out the trades by SMS or email, and then the trader has to log into their own account to place the recommended trade.
In the time between the receipt of a signal and placing a trade, the market may have very easily moved 5-10 pips, thus reducing, or potentially increasing, the potential profit. The movement may also reduce or increase the potential loss, as well.
Traders Can’t Match Signals
Do realize that unless you’re available to trade at your PC while the signals are released, you’ll miss out on a few trading opportunities enter and exit with profits and losses different than the signal service, and generally lag behind the performance of a signal provider.
Also, if you can’t make every trade—some signal services operate around the clock, and we all have to get some sleep—then you’re playing only part of what is presumably a good strategy. Maybe you’ll be lucky enough to hit a few of the most profitable trades, and maybe you’ll be unlucky enough to be around only for the unprofitable trades. There’s no way to know with luck, and successful forex traders cannot rely on the luck of the draw.
Downsides to signals
There are other reasons why you might want to avoid signal services:
• Results might be difficult to prove.
• The signal provider may have a different investment theme that doesn’t match your own risk-to-reward goals.
• The signal provider has different goals. Signal providers make money by selling signals, and not necessarily by producing profitable trades.
• Your strategy will rely only on one person or provider, which means you’re forever dependent on another entity to make profits.
• Future profits aren’t guaranteed.
Above all else, ask why a trading firm with a successful trading strategy would sell the services when they could simply trade the market themselves? Do they not have enough confidence to trade the market by themselves?
