There are many Forex brokers offering signals for free in the markets.
Anybody with little experience might think this is a good thing obviously.
The novice traders may think: “perfect, the professional traders are giving me good signal trades and for free.
Actually, the thing is true: the signals are free and provided by professionals, but in reality there is a small trick about it.
They are professionals yes, although not traders but dealers, other way to say brokers, which is different.
The signals offered by brokers are free in the sense that you do not have to pay for them, but you will eventually pay after applying them because you will not win in the long run with those signals.
In the long run, I mean after following some hundreds of those signals, unless you risk a lot in which case it will not take long for you to lose.
Brokers want traders to trade; it is as simple as that.
Forex signals for free
The fact is that it does not matter if the signals go down or up.
In the end, what matters is that the broker gets the commission.
In fact, there is one very common practice to get customers when using signals. I will discuss this later.
In the case of Forex or CFDs, the problem is more relevant since we are talking about very leveraged markets, where the majority of people risk a lot, and what is worse, the majority of brokers do not only win the “commissions” but also as market makers.
And it does not matter if they say they are ECNs since, in reality, they still work as market makers in practice.
In these cases, Forex signals for free, end up being quite expensive since the great majority of traders end up losing if they follow the signals for enough time.
Obviously if you are not leveraged it will take you more time to lose.
In the Forex market, in particular, if we take a couple of signals a day and we take enough time to end up going belly up.
As we can see this matter of recommendations and signals is quite common to the world of trading, whether it is stocks, Forex or CFDs.
These kinds of things happen in big brokers recommending buying Barclays at 9 with a stop order at 8.5 or in off shore “shady” brokers giving day trading ideas about Forex.
The difference between them is that when you trade proper stocks it will take more time for you to lose your money since the amount of leverage is reduced.
Free signals Forex
It is just common sense to see that the broker is not very interested in us to win, especially when the broker is the other side of the trade.
The brokers are not interested in you to go bankrupt but in in the fact that you do a lot of trading.
They want more and more commissions in one way or another.
In the end, everything is summed up in the fact that you should not follow those “free” signals provided by brokers.
With respect to the Forex signals that we find in the market, it is true that there are people who offer this “free signals” but it should only be for a while since they end up trying to build a subscription service.
Typical case to attract customers in trading or the stock market
This has been described numerous times for many people but I will repeat it my way.
And this is valid either for brokers, signal vendors, systems or other things.
The trick consists in offering signals of opposite value to different traders.
Therefore, if we start with 2000 potential customers we will lose half after the “first signal” is provided.
If we do the process three more times we will have 125 people who have won four consecutive trades with the signals.
Eventually some of them think this is a good system and buy it.
Just imagine 40 of them buy the service.
The process has many variations and tricks and I am going to tell one that I would do if some day I wanted to sell signals.
I would try to do a winning lose ratio of 1 to 7.
In other words, I would try to win just 10 pips and lose 70.
Imagine that the market moved 20 pips up and 20 down later.
In that case the 2000 traders “would have won”.
If we are able to repeat the process successfully three more times we will have 2.000 potential customers.
Imagine I do this eight times and only lose one side one time, after the market moved 90 pips.
In this case I would still have 1.000 traders that won eight consecutive trades so the likelihood that they believe the system to be good is quite high.
Perhaps most of them decide not to buy the “system” but if 100 or a few more do, then I will have made a good sell.
I do not want to say that there are not genuine and good Forex signals, but they will be very hard to find, especially because the market is full of crap.
This case I just mentioned is about paid signals, but they are the same as “free” ones, since the free ones will make us think that because they are free we have to take advantage of it and use them.
After several dozen trades in most cases, we will realize that our account has decreased significantly, and perhaps we can realize that the signals were not that “Free” after all.