The forex market trades about 1 trillion dollars a day. With this kind of money floating in a market that is not very well regulated, forex scams are all over. Most of the popular scams have ceased to exist thanks to the enforcement of rules by bodies such as the FCA. Today more advanced scams exist in the name of forex signal service. Don’t get me wrong, not every signal service is a scam. There are some good reliable signal services and all you need to do is identify them.
Forex signal providers may be an individual or retail firm that promises to trade your account or give you signals to enable you to make a kill out of the market. Some of them will tout their experience and back it up with a few testimonies.
Signal providers will give you entry and exit signals but remember you have no idea how they came up with the entry and exit points, all you have to do is follow. With all these promises, you will be tempted to subscribe. That is the moment it will dawn on you that whatever you have subscribed to is a pack of lies.
In this article, you will be shown how well to distinguish bad from good forex signals, and at the same time know what to look for when buying signals.
How to know if a forex trading signal is a scam
1. There are no verified trading results on myfxbook, forex peace army or similar websites.
Any credible forex signal service should have been verified in websites such as the Forex Peace Army.
Metatrader backtests, as well as an MT4 statement in Pips, are not enough as they could be easily be manipulated.
If for example, you take a look at the above chart, it is one of the performance chart ranking high in Google. There is no criteria or method to verify the above results. The results are not in myfxbook neither in forex peace army nor in any credible website on the internet. The chart has no losing months or weeks which makes it very suspicious. It does not show records for drawdown or open trades. It means with this performance chart you cannot make any meaningful decisions and there you could be easily scammed.
Another example is like the one shown below. The charts do not even indicate the period, whether these are monthly or weekly results. You cannot establish how long these trades took before closing. There is no verification in any of the websites stated earlier. By all means, this is a Forex scam and users should be keen when dealing with such products.
2. There is no information about current open positions
Another thing to check when choosing a forex signal is whether they have kept information public on Myfxbook. If a signal is working well, then why some of its results should be hidden? Why should current open positions be private?
Information such as equity, balance, withdrawals should be public to enhance your decision making. We need to note that not every signal in myfxbook should be trusted. If for example, a signal indicates a profit of 200 pips but the open trades indicates a loss of 2000 in an account of 5000 that is a bad signal. In this case, if you close the current open trades, then you end up losing like half your account. Some signals will only show you the closed profits and hide the gains or losses on open trades for you not to realize it’s a bad signal.
3. There is no trial period or at least money back guarantee
A good signal should give you an option to test their product. There should be a free trial period or some cheap option to allow a user test and feel comfortable before making the actual purchase. If that is not available, then, at least they should offer a money-back guarantee for a period within 30 days. In this case, you pay, and if you are not satisfied with the product, you get your refund in 30 days. If this option is not availed, chances are high it’s a scam.
4. Trading signal does not match trading history on the website
In some cases, you may come across this signal that has impeccable results, but the same does happen in your account when testing it. This signal is verified on myfxbook, but you notice your results are not similar to what you see on the website. There is a possibility that the website may be displaying results from a different strategy. They are simply using these websites as baits to capture the attention of unsuspecting client/ trader. These could be results from other sites they don’t control but the good result will obviously help market them on myfxbook or even forex peace army. Such acts are very suspicious and traders need to be careful.
5. Anonymous company/trader with anonymous payment methods
You may come across this signal provider located in a country you have not heard of before. Then, he/she requests you to do a wire transfer into their account.
This obviously sounds suspicious.
Firstly, ensure you deal with signal service providers originating from locations you have heard of before.
Secondly, if they are genuine, their payment method should be one of the common online payment methods such as PayPal or credit card payments.
I think everyone should learn at least the basics of how to spot Forex scams.
With all these in mind, the obvious question in one’s mind should be what trading signals are worth following? Listed down here are some of the attributes to look into before following a signal service:
- The signal should have verified records of myfxbook, FPA, and other credible verification websites. The rule here is, if the results are not verified, just move on do not waste time or money on unverified results. Considering that in most cases, you will not know on what basis their decisions are made on, this makes the verification part very important.
- Focus on signals with over 6 months record of profit and with over 100 trades. If whatever is being shown as results are for less than 100 trades that means the statistics are not sufficient to make any judgment. The result should be sufficient to offer statistical significance to inform your decisions.
Again if the results are for less than 6 months, then the strategy could just be lucky and with time it will be proved wrong.
- Make sure the signal operates with drawdown levels you are comfortable with. This will vary from one trader to the other. Some traders have a greater appetite for risk some have low. If for instance, you take a strategy with 30% drawdown, that means 3,000$ could be in drawdown with an account of 10,000$ and you remain comfortable. So work with a drawdown that does not give you sleepless nights. Don’t just focus on how much a strategy earns, take a look at its drawdown too.
- Get a signal with reasonable performance or subscription fees. When you are subscribing to a signal service, make sure the fee charged is reasonable so that you are left with some profits. So if you have an account of 200$ and Forex signal service gains 20% in a month then subscribing to this service at 50$/month does not make any economic sense, you end up in losses. Unless you are doing this to test the strategy, this strategy will only make sense if you have a huge account.
- As earlier stated any forex signal service should offer you trial period or at least money back guarantee. If they trust their product, then they should allow traders test before buying. If that is not the case, move on and don’t do not waste your money. They don’t trust their strategy, why should you?
- Signals should be showing the current open positions. Remember a signal may be showing huge profits yet the current open positions are in huge losses capable of wiping the whole account.
With these in mind, I will demonstrate how signal providers can make thousands of pips in a minute and still verify them. This may sound like a lie, but it still does happen.
A signal provider will open like five positions in all possible directions. Then he will wait for one of the trades to be profitable and then close that profitable trade in different micro lots. Assume that a trade is entered for 1 lot. When it turns into profit, the trader will then close them in 0.01 micro lots creating 100 trades. This is called partial close.
The trader will then update the record in Myfxbook but instead of showing profitability in dollars, he will show the profits in pips. If in the example above, we started closing deals with a profit of 13.22 pips, and then closed the deal in micro lots it means 100 deals were closed.
This means if we update on myfxbook a total of 1321 pips (100*13.22) will be shown.
If that is repeated over a month, a user will be easily tricked by the number of pips earned. On opening the results on Myfxbook, this is what you are likely to see. As you can see, a single trade yielded 100 trades (in partial closes) and profitability and 1322 pips. In a real sense, only one trade of 1 lot was entered and yielded only 13.22 pips.
Not sure how about you but this looks more serious than just a simple repainting indicator scam.
Just like in most trading scams, the scam will not only be in the service itself but in the manner in which it’s marketed too. Most of these scams will promise you a billion dollars, and one has to stop and wonder why aren’t they billionaires?
There is that obvious temptation to follow reviews by users, remember most of these individuals know that an aspiring user of forex signals will heavily rely on what other users say about the product. They will, therefore, hire people to review them well. The rule in this game is, make your own observation, and follow the stated guidelines in this article.
Always remember, if it’s too good to be true, then it probably is. Look for a strategy that is honest, one that at some point has some losses. It is practically not possible to earn continuous profits in the long run without losses. If you look at the results below, in a span of one month, it is said to have won over a million dollars. If you look at the investment and payout, it does not add up and should obviously raise your eyebrows.
On the same note, when the signal provider only uses demo account or very small amounts to demonstrate his strategy, that should raise some questions too. Why are they not willing to use their own money if they trust their strategy. It doesn’t mean that every strategy tested on a demo account is not good, there could be some good ones, what I mean is it easier to trust a signal where the provider invests real money as opposed to those using demo accounts. In a nutshell, users of signals need to go beyond those beautiful ads all over the internet, to try and substantiate the results offered in order to come up with a working forex signal.
When choosing from a number of providers, the focus should not be on who among the providers makes more money. Instead, you should get that provider who gives good results but with a high level of consistency.