Are trading signal providers a scam?
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There are a lot of trading signal providers on the net. These services mainly attract novice traders who are looking for performance. Trading signal providers obviously play on the individuals’ greed to attract new customers every day. It's true that they give you something to dream about, being able to earn a lot of money without doing anything. But what about reality? Can we trust trading signal providers?
In this environment, you will find everything, including crooks who will do anything to make you pay for their trading signal service. Here are some tips to detect the most frequent scams:
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From all the feedback I have seen, trading signal service providers are rarely of high quality and are very disappointing. That doesn't mean you have to condemn them all, there are some very good ones, but if you're interested in trading, the best signal provider is yourself. In addition, there are enough sites and traders who provide trading ideas to avoid having to pay a trading signal provider.
How to detect a trading signal providers’ scam?
In this environment, you will find everything, including crooks who will do anything to make you pay for their trading signal service. Here are some tips to detect the most frequent scams:
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Performance too high
: If the signal provider has a delusional performance every month, it always hides a scam. Often the performance displayed is rigged or the risk taken is enormous. It is always important to pay attention to the risk/return ratio. Making 100% a year is impossible without taking excessive risks and sooner or later, it ends with razing the account!-
A linear curve
: We see it regularly on social trading platforms, signal sellers who display a constantly increasing curve. That is simply not possible. A trader always goes through phases of gains and losses, it is inevitable. It should be noted that on social trading platforms (myfxbook, etoro, zulutrade, etc.), unrealized gains/losses are not taken into account in the performance curve. If you look more closely, you will see latent losses beyond your imagination! Having a linear curve is very simple, I’ll give you an example. Using the martingale principle. I only close my positions if they are in profit (for example, I put a close take profit order on each position) but I inevitably find myself with positions in my hands where the take profit order has not been triggered. It then only takes one hit in the market, in the wrong direction, and the gains no longer cover the unrealized losses!-
Promises and guarantees
: If a trading signal provider guarantees you a certain profit at the end of a period, it is in 99% of cases a fraud. It is simply a commercial technique to attract the customer. They could promise to reimburse you for your expenses if they cannot achieve the indicated performance, etc. But in reality you never see your money again or even lose a large part of your funds. There are a few exceptions, but they are very rare. Therefore, you should pay a lot of attention to the trader's CV. If he is as good as he says, believe me, a trader will not bother to collect a few hundred euros from individual clients by selling his trading signals.Points to consider when choosing a trading signal provider
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The signal provider’s CV
: The signal service must be able to provide you with the CV of the trader who gives you the signals. If he says that he doesn't want to tell you, it's a scam. If you get the trader's CV, look at his experience in the financial markets, his past performance on a real trading account. You can never be too curious at this time.-
Regulation
: Providing trading signals is considered as financial investment advice (CIF) and is therefore subject to the competent regulatory authorities, namely the FCA in Great Britain . Without authorization, the trading signal provider is not allowed to solicit customers in France. Well, whatever happens if you get ripped off, the AMF is useless, but if a signal provider has taken the trouble to be regulated, it shows a willingness to do things correctly.-
Drawdown
: This is the maximum historical loss recorded on the trading account over a given period. Basically, it represents the risk. You must then relate the displayed performance to the drawdown. You have to try to have the highest possible performance/drawdown ratio. For example, between a strategy 1 which makes 30% per year with a drawdown of 15% and a strategy 2 which makes 20% per year with a drawdown of 5%, strategy 2 is much better!-
Price
: I'm not going to tell you to avoid the most expensive trading signal services, but you just need to be able to get a quick return on your investment. Everything then depends on how much you want to invest. If you are looking to grow a €1,000 portfolio and the trading signal service charges you €100 per month, there is no incentive! Even if the trader's performance is good, you will never recover your costs.Different types of trading signal providers
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Brokers
: Some Forex brokers or binary options brokers offer account management services. This is a little different from traditional signal services since you simply leave your trading account to the brokers. Here again, we find all types. If the broker is new, avoid entrusting your funds and carefully monitor its regulation. There are so many scams, especially withbinary options brokers. These brokers play against the client and the more you win, the more money they lose. Some will make you earn money in the beginning so that you will deposit more, but when you want to withdraw your funds, they will sink your trading account to cash in their added value! On Forex, it's less common, but you can find all types there too, so be wary.-
Social trading platforms
: The problem on these platforms is that the traders you follow have control over your account. When they place an order, it replicates it on the other accounts. Even if the performance/drawdown ratio looks good, you are never immune to the trader breaking down. So the question you have to ask yourself is: Are you ready to completely trust a stranger? Evidently the answer is yes, for some people, as these social trading platforms do well. If I can give you one piece of advice, it's to diversify your investments. Don't bet everything on the same trader, diversification helps to limit your risk. I also advise you to avoid scalpers. Indeed, if the trader has too many followers, there is a significant latency time between the time the trader places his order and when the order is automatically placed on your account. As a result, you will have a totally different performance to the trader you are following.-
Private individuals
: There are many individuals on the net who are getting into trading signal services. Look carefully at the various points to consider that I mentioned above before making your choice. The watchwords are be wary. Always seek as much evidence as possible about what they are saying. If they have trouble providing you with supporting documents, it's suspicious!-
Trading sites
: There are a lot of sites on the net that provide trading ideas. These sites should not be confused with signal providers. This is the case, for example, with CentralCharts. The analyses is there to give you ideas for trades, so you are free to follow them or not and you don't have to pay anything. I do not advise you to blindly follow any trader. You could copy the trade idea, but only if it seems relevant to you and if it is in line with your trading strategy. Copying without thinking does not improve trading. On the other hand, it is a good way to develop your critical thinking skills, exchange with other traders, improve the quality of your analyses and in some cases, take advantage of the buy/sell opportunity provided by the trader.Conclusion
From all the feedback I have seen, trading signal service providers are rarely of high quality and are very disappointing. That doesn't mean you have to condemn them all, there are some very good ones, but if you're interested in trading, the best signal provider is yourself. In addition, there are enough sites and traders who provide trading ideas to avoid having to pay a trading signal provider.
