One type of forex scam traders may encounter is the High Yield Investment Programs which is nothing more than a type of Ponzi scheme. These are scams where traders are lured, and then defrauded, with the promise of impossibly high ROI’s - often as high as 70% or over. These scams may involve forex, stocks, or any other kind of investing instrument.
Named after its creator, Charles Ponzi, these schemes have proven very successful over time, climaxing (although by no means ceasing) with the recent exposure of the massive $65 billion Ponzi scheme run by Bernie Madoff.
While Ponzi schemes have reached mind boggling sums, the model is extremely simple. The con artist takes money from new investors and distributes it back to other investors (or even the same investors) stating they are returns on their investment due to the con artist’s unparalleled investing acumen. The model is unsustainable and invariably implodes – but often only after they have run for years and ruined the lives of the vast majority of participating investors. Given the scam’s model, early investors may see some initial profits but are often stung when the scams implodes and may be pursued in court for profits made off fraudulent schemes.
How can this type of scam be avoided?
These broken dreams can be avoided first and foremost by understanding that these kinds of low risk, high yield returns simply do not exist in the financial markets. If someone you have just met online is offering you an exclusive golden offer, one that has to be taken up immediately, while he bamboozles you with industry terms and jargon, alarm bells should be ringing in your head. As they say, if something is too good to be true, it probably is. However, it is also important to note that many Ponzi schemes now offer lower returns, knowing that the promise of unrealistically high returns will turn off some investors.
As a practical step (and this applies to all investments made, not only for HYIP’s) always question the techniques of the money manager and constantly keep track of where your money is. Don’t trust a referral or recommended name just because it came to you through a trusted source as the source himself could have been duped. Do your homework. For example, check the website, the payment system, the country where the company is incorporated – these little details might indicate that you are dealing with a scam artist.
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