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Evaluating Free Forex Trading Signals

With so many free forex trading signals services out there, new traders need to know how to sift out the wheat from the chaff. This article provides some direction in this regard.

by Eno Eteng

Free Forex Trading Signals

There was a time when forex signals given out to traders were paid for. Today, it is possible for traders in the forex market to receive free forex trading signals as there are many companies providing this service. However, you have to know that sometimes, the best things in life are not always free. There are so many free forex trading signals services which are either just not very good or outright scams. With poor quality products and scams out there, new traders will have a really hard time figuring out what is real and what is not. These problems did not exist eleven years ago when I started playing the forex markets for the first time. It was sometime in 2006/2007 that the first signals and automated trading software started appearing on the internet in large numbers. But these were not free and had to be paid for. Knowing that it would entail parting with hard earned money, traders were more circumspect when searching for which one of these expert advisors or forex signals services to buy.

As traders began to get wiser, the software vendors got smarter. Instead of selling these signals services and EAs, they began to offer them for “free”. The question that begs for answers is this: how free are these “free” forex trading signals?

The Workings of Many Free Forex Trading Signals

In the financial markets, if something is offered for free, you can be sure that you will pay in other ways. For instance, when a broker has organized a team of experts to provide free forex trading signals, these experts have to be paid. I have provided such services and I was paid by the brokers for doing so. Brokers are not in the charity business; any costs incurred in offering services for free, will definitely be covered, even if not immediately apparent. So how do brokers cover the costs of "free" services?

Traders pay for the spreads whenever they execute a trade in the forex market. The spread is the broker’s compensation. Offering “free” forex trading signals is a marketing tool which will ensure that more traders are recruited into the system. More traders= more trades = more money from spreads. So whatever cost is incurred in offering free forex trading signals services will be covered in the long run from increased revenues generated from spreads.

Now I need to make this clear. There is nothing wrong with providing or receiving free forex trading signals. The problem arises when everyone does not benefit from the system. The system should work as a symbiosis. The experts providing the signals should only be paid if their signals are accurate enough to make some money for the end-users. The brokers will keep getting their spread payments as long as traders get recruited into the system and keep trading. The end-users should make money on their accounts from the free signals. In an ideal setting, this is how it should be and everyone should end up happy.

However, the reality in many instances is far different. Most times, the end-users are the ones left dipping their fingers in cold water after getting them burnt from using fake signals services. The brokers always make their money, and experts do get paid for not assuming any risk. The entire risk is on the trader/end-user of these signals. If the signals end up not being good enough, there is really no way to recover the lost monies. This is because many retail brokers are market makers who act as counterparties to trades and profit from the trader’s losses. That is why traders have to go the extra mile to conduct their due diligence when choosing brokers that offer free forex trading signals services. Apart from due diligence, traders should also adopt some common sense when using these services.

Getting the Best of Free Forex Signals Services

Below is a checklist of things that the end-users must do when selecting and using a free forex trading signals service. Retail traders should understand that in the context of these free forex trading signals services, they are the ones taking the greatest risk and should therefore take the greatest precautions.

Always do some basic background checks on the brokers. There are some basic facts you must check for:

  • Check for the regulatory status of the brokers offering these signals services. Where are they located? Use the location to find out the regulator for that jurisdiction. Then check the website of the regulator to know the standing of the broker. You can even put a call across.
  • For free forex trading signals services, always request for a published and independently generated substantiation of past and projected earnings. There are third party websites that provide these services.
  • Request for the broker's license number.
  • Know the company just the way the forex brokers ask to know you as a customer. Who are the brokers? Who owns the company? What is the physical address of the company?
  • Confirm any answers you are given with the regulators.

Finally, do an online reputation check on the forex company offering you the free forex trading signals service. There is usually no better gauge of how good or how bad a service is than the experiences of past and present users.

When you put all these together, you will be able to filter out the junk from the companies offering the real deal, and you will get the best of the service you are paying for.


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