CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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ThinkMarkets > Support > FAQs > Trading FAQs > How to understand forex trading signals
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 How to understand forex trading signals
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How to understand forex trading signals

Forex trading signals are available from a multitude of places around the Internet, but they all essentially work in the same manner. You typically will pay some type of subscription fee, although there are some that are freely available. The signal itself can be initiated through SMS, email, or even through third-party applications such as Telegram, Skype, or WhatsApp.

The forex signal, in theory at least, is sent out by somebody who is a consistently profitable and professional trader for others to follow in order to gain some guidance in the financial markets.

As a general rule, the forex trading signal will state something like the following: 'Buy EUR/USD at 1.1178, stop loss at 1.11, target at 1.1317.' In this scenario, you are instructed at what price to buy the Euro against the US dollar, where to set your stop loss, and what the take profit target is going to be. Granted, forex trading signals won’t always be the same, and different providers will offer wildly different results.

You should be aware of the fact that forex trading signals may or may not work for you. For example, if the trader or trading services based out of Asia, there may be more of a slant towards short-term Asian trades, but if you live in France this could be an issue.

Furthermore, some forex trading signals are focused more on longer-term trades, which while can be extraordinarily profitable, sometimes ask for very large stop losses. At that point, it comes down to whether or not you are comfortable being more of an investor or if you wish to keep your trades open for smaller time frames.

Some traders are not comfortable hanging on for weeks at a time, while others have no issue doing it. At this point, it is paramount that you pick a forex trading signal service that aligns with your needs and comfort.

One thing to think about with a forex trading signal is whether or not it tells you what position size you should be putting on. Most don’t, simply because traders won’t always have the same risk appetite that the signal service would.

For example, the traders that provide the service may be perfectly comfortable with trading with a 1% risk on every trade, while the retail trader that is buying these signals may be quite a bit more aggressive and are comfortable using 10% risk on every trade.

While that isn’t necessarily the smartest way to trade, each trader certainly has that right, especially if it’s risk capital that they can afford to lose quite easily. At the end of the day, the forex trading signal provider will offer the parameters of the trade, the size will be entirely up to the receiver.

It should be noted that there is an alternative to the situation when the forex signal provider actually takes control of the account, although that is entering the realm of managed forex accounts, which of course is a completely different 'hands-off' type of experience.

It is crucial to do your research. Most providers will offer some type of track record in which to gauge whether or not they are the appropriate provider for you based upon not only returns, but risk-adjusted returns which is the amount risked versus the amount gained.

As a general rule, it makes much more sense to deal with a forex signal provider that offers more aimed for thin risked, as unfortunately many of these providers will aim for quick success of gains but take on huge amounts of risk. This will lead to a high profitability rate, but massive losses if a trade doesn’t work out.

In this scenario, it’s not uncommon to see one bad trade wipe out 20 or more small profitable ones. These providers are to be avoided at all costs, because they are simply a blowup waiting to happen. A good practice to follow is that if you have a forex signal provider, you must keep a spreadsheet on your own to keep track of all of the parameters and the metrics of the performance that you are paying for.

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Risk warning for retail traders: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Risk warning for qualified professional traders:  Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks associated with a professional trading account. Tax laws depend on individual circumstances and may differ in a jurisdiction other than the UK.
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