Adequate price of trading signal
One of the most overlooked key-elements of a trading signal is it's price structure. Investors tend to over-emphasize signal's historical performance and financial metrics, completely forgetting about the most important question - whether it is possible to make any money through this service.
There are quite many ways to structurize the payment for trading signal services, so let's brake the most pupular ones down:
- Constant monthly payment - the most usual payment method. From investors' perspective, this is rather fair method - a trader is incentivized to maximize his monthly performance in order to retain as many customers as possible. Here, both investors and traders have similar interests - to maximize growth/drawdown ratio in the given period.
Typical monthly subscription fee lies between 20$ and 200$, depending on quality of services and investment's size.
- Part of profit - in this scenario, a trader earns his subscription only in those periods, when his signal service has been profitable. Usually, both parties decide an amount of % that an investor will pay to a signal provider for each $ that this service will bring in during predetermined time, typically, a month. From investors' perspective, it is important to realize that such payment structure is rather lob-sided -> while both parties share profits, losses are covered fully by an investor. Because of this, a trader is indirectly incentivized to take on larger risks than he would normally do, resulting in lower quality of the service.
In such payment structure, a trader could ask anywhere from 5% to even 30-40% of investors' profits, depending on terms of a contract.
- Price per trade - a trader receives a small payment for each closed position, disregarding whether it has braught losses or profits to investors. This payment structure is even less favourable for an investor than the previous one as here trader is indiferent of trading results - all he is interested in is the trading process. As of result, a trader is incentivized to trade as frequently as possible, leading to significant overtrading risks.
Usual price per trade is between 0,1 and 1 USD, depending on investors' size of capital. Effectively, this can be treated as add-on to the usual spread's value.
- Price per traded lot - a trader receives a small payment when the size of closed positions reach 1 lot, disregarding whether these trades have brought losses or profits to investors. This is another version of the previous payment structure and it has the same negative consequences.
Usual price per traded lot is between 1 and 10 USD, depending on investors' size of capital. Effectively, this can be treated as add-on to the usual spread's value.
Summary of 4 main payment structures for signal services: