Scams such as trading pyramid schemes are lurking at every turn if you are interested in the financial world. Where money is involved, you can be sure there's a scam around the corner. The rise and popularity of options trading drove millions of traders to try a hand at it. The majority of traders lost their money in this seemingly easy way to make profits.
This led to the rise of a new breed of scammers. They preyed on unsuspecting traders who lost their money but were still willing to invest in options trading. These scammers are Ponzi schemes that claim to be options trading investment funds.
Note that investment funds are a legitimate business model. Ponzi schemes on the other hand aren't. This article will show you how this scam operates and how to avoid it.
Overview of trading pyramid scheme
A Ponzi scheme usually has a leader at the top. Under the leader are two or more people. Each of these has two or more people under them and so on.
What happens is that every new member is “sponsored” to join the group. The new member is expected to pay a fee. But in this case, the fee is your investment. The scheme leadership claims to use this investment to provide high returns from their options trading activities.
In truth, this investment is actually shared with higher members of the group. The only way you can get your money back is by sponsoring new members and ensuring that they sponsor other new members. As soon as the scheme stops attracting new members, it collapses and tons of money is lost.
This type of scam can be linked to one market only, for example, you may come across a forex trading pyramid scheme where traders interested in the foreign exchange market (forex) are recruited into the pyramid.
You can clearly see that this isn't an investment fund in any way. Investment funds enable you to make money from your investment. Trading pyramid schemes on the other hand require you to work for the group in order to make money – after they take your investment.
Why options trading Ponzi schemes look attractive
One thing about these trading pyramid schemes is that they've devised easy ways to hide their underlying intent. First, they won't advertise themselves as Ponzi schemes but rather as investment funds. Their sleek advertising also includes huge amounts to be made each day. For example, a scheme might advertise 30% daily returns on their $10 million fund. No one would want to back down on the opportunity of getting a share of $3 million each day!
But in reality, no one can guarantee 30% returns per day, especially in options trading. A decent return of 3% to 5% per day is possible. However, this doesn't necessarily mean it will consistently occur.
Making money as an options trader involves risk. So why would you want to transfer this risk to a complete stranger? Allowing someone to trade using your money in options trading simply implies you don't care about the money you have. The person trading with your money is not obliged to pay it back if they lose it in the markets.
The point I'm trying to make is if you want to become an options trader, open an account and do the trading. It's the only way to know whether you're cut out for the markets or not.
If you ever join a Ponzi scheme, get out fast. The problem with this business model is that it pressures you to recruit new members to make your investment back. This means you might be pushed to recruit friends and family into joining. It will eventually lead not only to monetary loss, but loss of trust between you and your close ones.
Keep your IQ Option account secure
Besides Ponzi schemes, you might also come across traders claiming that they can help you make money trading options. This is only if you allow them to trade with your funds. They will even possibly send you proof of their trading success.
Never give access to your trading account to anyone. If someone claims to be a pro trader, they should share their strategies with you rather than ask for access to your account.
Is forex exchange a pyramid scheme?
The foreign exchange market is where foreign exchange is exchanged using various instruments. Trading on forex in no way bears the hallmarks of a pyramid scheme. Here you buy or sell a specific currency for another currency. There is no place for depositing money into a suspicious fund.
Can you make money off a pyramid scheme?
This is a very dangerous question. Firstly, the trading pyramid scheme is illegal in most jurisdictions. Secondly, there are ethical considerations. I cannot imagine making money out of harming other people. That is what pyramid schemes are all about. Theoretically, it is possible to make money from a Ponzi scheme. Bernard Lawrence Madoff showed it with his activity. This man created a financial vehicle in the USA worth about $64.8 billion. He lived most of his life on a high level cheating his investors. This shows that you can make money by trading pyramid schemes. Pyramid schemes make money for those at the top and potentially for those who joined at the very beginning of the vehicle building. Of course, this is only on the condition that they withdraw their money quickly enough.
Don't get caught up in a trading pyramid scheme
Financial pyramids are springing up every day. Most are usually created when financial markets are overvalued. Ingenious scammers come up with new ways to catch profit-hungry investors. When the market falls instead of rising, investors look for alternative investments. Some of these, unfortunately, turn out to be trading pyramid schemes. If someone tells you about super-profits without risk, beware. Take all your financial decisions with due diligence.
Many traders are losing money to third parties claiming to make hundreds of thousands for their “clients”. Do not fall for this trap. If you want to be an options trader, follow the same steps successful traders did. Learn how to trade, be patient when using the IQ Option practice account and only trust yourself when it comes to handling your money.
GENERAL RISK WARNING
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