What are Forex Signals?

Forex Trade Signals

Forex signals are trading suggestions to buy or to sell a Forex currency pair at a specific price and time. A Forex signal can be produced manually or using sophisticated forecasting systems. Forex signals as trading orders may be executed manually or automatically using Expert Advisors (Forex robot).

How Forex Signals are Delivered to Traders?

Forex Signals may be delivered free or as a part of a paid subscription service. As concerns the delivery methods, here are the most popular methods:

1) through registration to a signaling web-site

2) via email

3) via SMS

4) via Twitter

5) via an automated system which is called a Forex robot (or Expert Advisor)

What Information is Incorporated into a Forex Signal?

The key information of a Forex signal includes 1) a target or take-profit price, and 2) a stop-loss price. So let’s see a simple example of a Forex signal:

Let’s suppose the signal is about EUR/USD which is actually traded at 1.2000 and the signal provider forecasts an upcoming Euro appreciation:

Take Profit (Target Price): 1.2042

Stop-Loss: 1.1980

Profit to Loss Ratio and why it is Important for all Trades

This is a very important ratio that can determine the efficiency of a Trading Signal. According to the above mentioned Forex signal, EUR/USD has a profit potential of 42 pips while it is exposed to a risk potential of 20 pips.

Profit Potential: 1.2042 – 1.2000 = 42 pips

Loss Potential: 1.2000 – 1.1980 = 20 pips

That means that the Profit to Loss Ratio of that particular Forex signal is 2.1.

Profit / Loss = 42 / 20 = 2.1

General speaking that is a good Forex signal as every value of that ratio above 2.0 may be considered as beneficial for traders.

Note: There are always exemptions to that rule but don’t forget that the existence of an exemption at the first place is a factor confirming the existence of a rule.

Free and Paid Forex Signals & Providers

Commonly, Forex Brokers are providing free Forex signals to traders as an incentive to them in order to open or to retain a trading account. If you are after a more sophisticated signaling source you may subscribe to a monthly paid service from a commercial signal provider. Fees for signaling services vary from $30 per month to $300, or even much more.

General speaking if a Forex signaling service can provide trading signals with accuracy more than 0.60, it may be considered as an efficient service. That number 0.60 means that 10 trades will conclude to 6 wins and 4 losses. Keep in mind that if the Profit / Loss Ratio mentioned before is more than 2:1 and the accuracy of the signal provider is more than 0.6 then you can make really good money. Of course, all these numbers are my assumptions and it is better to test with historic performance data any Forex signal provider.