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Tuesday, February 21, 2012

Why ZuluTrade is a bad idea

If you got to this post via a search engine, you know what ZuluTrade is. If you don't, ZuluTrade is a website that offers a platform for Forex signal providers to broadcast their trading signals so that these are replicated across subscribers' accounts.

The idea looks great. The first time I saw this I thought "AWESOME, A PLACE TO COMPARE SIGNALS PROVIDERS AND TRADE WITH THE BEST!". And in fact the idea is good, but there are other factors in ZuluTrade that in the end make it a very dangerous platform.

The most important factor in my opinion is the way in which signal providers are compensated. Every time a subscriber places a trade, the company charges a 1 pip commission per lot traded per user. And here's the key of the problem: it doesn't matter if the trade is profitable or not, the only thing that matters is for the trades to be entered. This compensation schema is less than ideal, as signal providers are only encouraged to issue as many signals as possible regardless of their outcome.

Let's say a signal provider has a solid mechanical system, with a solid record, but that system hasn't issued any signal in the last week. Many subscribers start getting desperate and asking for action, plus, the signal provider at some point might be hunger for subscribers' commissions, you never know. The whole schema only promotes over trading, for the benefit of brokers, Zulu and alert providers.

The second problem, which is not less important, is that the alerts provider can place and broadcast his alerts on a Demo account! That's insane! The alerts provider might not be playing his real money after all so he/she could care less as the risk he/she is under, is non-existent.

There are other issues, related to the rankings and all that but those are more in charge of the subscriber to know and judge. So, for example, if you see a provider with 15K in profit, ranked number 1, with 100% winners, you might think he is the real deal. But only after inspecting his track record and verifying for example that he doesn't cut losses and therefor has a floating balance of -15k, then you realize he is not the real deal after all, but the real massacre for your account.

I chose an extreme and evident case to prove my point. But there are many more subtleties on a track record that can show really bad practices like progressive position sizes, average downs, excessive risk etc which are less obvious for newbies to detect. Obviously, many rookies, or holy grail hunters don't look into these things and become subscribers of any alert provider without careful consideration, which is extremely dangerous.

If ZuluTrade were to improve the quality of the trade alerts service, they could ask for verified track records of real money accounts for periods of at least a year, so not anybody could become a guru. They would also ask traders to trade their alerts on their real money accounts. And finally they would only pay commissions if the trades were profitable. Of course, if they do all this, the activity around the website would be drastically reduced as a very small portion of signal providers would be around. And therefore a lot less in commissions would be generated. Only real traders with long term sustainable performances would remain, and those long term realistic performances are not attractive at all for rookie traders who are expecting the 1000000% yearly returns. And they would just walk away.

That's the sad state of this joke of an industry. The same existence of holy grail hunters with unrealistic expectations that need to be fed creates all the problems that the online Forex industry has, from the crappy and useless Expert Advisors to the Destructive Trade alerts providers. I'm not saying you won't find a good signal provider at Zulu. You can. I'm just saying, be aware of the fact that it is a dangerous game. And know all the pros and cons in advance.


  1. As far as i know zulutrade have changed the rules recently which means if the provider have a negative month he wont get commisions. But i do agree that many providers just dont know how to trade and do it for the money and then disappear , thankfully zulutrade is trying constantly to heal that.

  2. Thanks for your comment Anonymous. I will revisit this topic in a few months. Thanks for letting me know

  3. Zulutrade did improve the quality of trading with the new rule mentioned above - which resulted in better trading for the serious traders and a lot of complains from those there only for the commission. For us the followers this was quite an improvement towards systems stability.