What are signal providers and forex trading signals?

What is a signal provider?

A forex signal is a notification of a trading opportunity, and a signal provider is a person or organisation that has obtained the necessary regulatory permissions to enable other traders to copy their trades via a copy trading system. The provider may earn income from charging subscribers a subscription or a performance fee, but this is optional and completely up to the provider.

Why do people use signal providers in the first place?

Signal providers are used by people to save time. Traders may pay signal providers to use their expertise in place of spending numerous hours examining the markets.

It can also be a diversification tool. Even if a trader is trading manually, copying experienced traders could help gain exposure to markets that they are not trading themselves. Even if a trader trades manually, copying established traders can help them get exposure to markets in which they are not trading.

How do signal providers work?

Signal providers use different types of strategies. Some rely on manual trading, where they analyse markets using technical and/or fundamental analysis to identify trading opportunities. Another method is to use an automated system that scans the markets for trading opportunities.

Signal providers make money by charging their followers a fee for their services. This might be limited to only a subscription fee – a fee for allowing the follower to copy the trades – or it could include a performance fee, which is calculated based on the realized return of the signal provider. For example, if a signal provider “Alpha” generated a profit of $100 for follower “Beta” in a given period and the performance fee is set at 25 %, Alpha would receive $25 in performance fee while Beta would be left with $75 in profits.

Signal providers may also choose to charge both a subscription and a performance fee at the same time.

Signal providers need to understand that there is a lot of competition, and traders can choose from a variety of providers. High returns are not enough, as traders will also be scrutinizing their drawdown and risk profile, along with how much is being charged in fees.

Why should you become a signal provider?

1. Multiple streams of income

If a trader is profitable and happy with their performance, they can scale the business and create additional streams of income. As a signal provider, you can charge users a subscription fee (creating a fixed income stream) as well as a performance fee (creating an income stream that will depend on how well you perform as a master trader).

2. Scalability

As a consistently profitable trader, you will be featured in the Axi copy trading leader board, which will strengthen your reputation. You are more likely to gain new followers and scale your business further, without having to heavily invest in marketing. Instead, you can focus on your trading performance.

3. Build a reputation

Think beyond the horizon. In the short term, your focus will be on keeping up your trading performance and building a large follower base, which will allow you to scale your business. In the long term, you could encounter various other business opportunities as profitable signal providers. You might get approached by large investors or become part of an exclusive prop trading program.

4. Benefit from the community

With enough followers, you may realise at a certain point that you have built up a small community around your signal service. This can be useful as you might be able to exchange ideas and experiences with some of your followers. Some of them might have expertise that could benefit you - such as how to market your services even better. It is not only beginners that are using copy trading services. Experienced traders also turn to copy trading for diversification purposes.

5. Improve as a trader

As a successful signal provider, you are essentially running a business. What happens on your trading account does not affect only you anymore, but also your followers, who are paying for the service through the subscription and/or performance fee. This means more responsibility, which can help you develop yourself as a trader and improve your trading psychology.

How to become a signal provider

It is beneficial to have an existing track record, as this will allow potential followers to analyse the results prior to subscribing. Starting as a signal provider without any track record - if the copy trading system allows it in the first place - can be difficult, as few will trust a trader that does not have any or insufficient history.

Before registering as a signal provider on the preferred copy trading system, you must decide which type of strategy you will utilize.

Some signal providers choose to activate an automated trading system - this allows them to focus more on their operations and tweak the system when needed.

Using a copy trading platform allows you to scale your base of followers, lets them copy your trades automatically without manual intervention, and usually includes advanced statistics that can be viewed on the website and/or app.

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The Axi Copy Trading App is provided in partnership with London & Eastern LLP. Past results are not indicative of future performance. Copying other traders carries inherent risks, such as the possibility of replicating poor trading decisions or copying traders whose objectives, financial situation and needs differ from your own. Any accounts available for copying have not been authorised or approved by Axi.

This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.