Guidelines To Choosing A Third Party Forex Signal Provider

The foreign exchange market, or ForEx, has attracted many people and many of them have made it their financial vehicle of choice. With the markets new popularity, there are certainly some extras to consider. Books, videos, software, trading systems and third party signal providers. Today, I will tell you about some things that you should consider when selecting an excellent third party signal provider.

For you to choose a quality third party signal provider, we should have a good understanding about who they are and what they do. Signal providers are other traders or analysts that are able to place trades in your own account with the hope of turning a profit. Depending on your trading needs, you can have one or many signal providers.

The US Constitution states that all men are created equal. Unfortunately this is not the case with traders or signal providers. Some traders look like a million bucks at first glance but turn out to be bad news upon further inspection. To keep away from these types of traders we have to set some guideline to follow when choosing a third party signal provider.

1. The first thing I look at is whether the trader is a winner or a loser. This may seem obvious to nearly everyone, but I often see losing signal providers with 50-100 people trading their signals.

2. The next thing to look at is how long the trader has traded profitably. You don’t want a brand new trader without a track record trading your real money account.

3. An important factor is the maximum drawdown that a trader has caused to their account to date. Big draw downs mean a greater chance of a margin call and a much bigger chance that you will never recoup all of the losses that take place in a massive draw down.

4. The first three are easy to look at. They will be displayed right on the main screen of signal providers to choose from. Once you get a few signal providers you are thinking of using, its time to dive a bit deeper into their history.

a. Look at their actual trades. Do they have a good win rate because they have opened a ton of trades all at the same time on the same currency pair? They may have 20 winners in a row. This looks great, but if you look a bit deeper you will see that its really only 1 winning trade places 20 times. Not as impressive is it?

b. Have a look at how far they let their trades get away from them. Is your signal provider letting trades get 300 pips or more against them at times? Do they close trades the minute they turn into profit? If so this is a trader who does not understand risk and reward and should not be considered to trade real money.

c. Does your trader add to losing positions? Generally someone who is doing this is trying to average down their entry point and is setting themselves up for failure. Make sure when they do fail that your money is not on the line.

5. The most important thing is to choose a signal provider that you can live with. If you are risk adverse than an aggressive trader will probably more than your stomach can take. Its OK to let your account grow at a more modest pace if it helps you sleep at night.

This is only a simple guide for you to consider when looking for good third party signal provider. Remember to always trade a demo before a live account and that ultimately the money is yours and no matter what happens to it, you are the one who’s responsible for it.

To learn more about 3rd party signal providers visit Automated Forex Trading Systems.