Anywhere there’s money, there will also surely be a scam right around the bend. The new rise in popularity enjoyed by some financial assets persuaded millions of beginner traders to try their luck with these new monetary products, seeing it as an easy way to increase their balance. As you can probably expect, the vast majority of these new traders lost their money – after all, trading is not as easy as it seems.
This phenomenon encouraged new kinds of scams that targeted down-on-their-luck traders with an even easier way to gain back what they lost – these new scammers baited them with Ponzi schemes pretending to be investment funds for certain financial assets.
Remember, investment funds themselves are not the issue – they are a genuine business model with genuine benefits to some people. The problem starts when scammers dress up their schemes with it.
This article will discuss how you can identify Ponzi schemes pretending to be legitimate investment funds, and what you can do to avoid them.
The anatomy of a Ponzi scheme
Ponzi schemes are named after the person who first used this tactic to commit financial crimes. Charles Ponzi conned a lot of investors out of millions of their dollars by baiting them with ‘returns’ that he merely got from the initial investment of other investors.
In this section, let’s discuss the main characteristics of a Ponzi scheme as they exist today – and later on how these schemes have adapted to take on the image of an investment fund.
The pyramid structure
The structure of a Ponzi scheme is a simple and easily identifiable pyramid.
They usually have a single leader who started the whole thing. Below the main leader are two lesser members. Each lesser member has two more members under them – a total of four new members on the third level – then those members are now going to be encouraged to recruit more members to be under them, and so on.
If you map it out, the organization of a Ponzi scheme is going to look like a pyramid with one leader–typically the founder of the scheme–on top, and the number of people multiplying as you go down the levels.
Ponzi schemes use everything under the sun as facades for their infernal plan. They may be masquerading as a health-and-wellness product distributor, a beauty product distributor, and in the case of this article, a financial asset fund.
However, if you map it out, Ponzi schemes always look like a pyramid. This is where the term “Pyramid Scheme” comes from.
How it works
What happens within these groups is that every time a new member is recruited, they are supposed to pay a ‘membership fee’. Usually, membership fees are to cover to cost of your joining a certain premium group – but they are not the primary way that the organization makes money.
However, this is exactly what happens in pyramid schemes – the new member’s registration fee is going to be shared and distributed to the higher members of the group as their “profits”. This is why new members are encouraged to recruit more members because this is the only way that they can take back what they paid for the “membership fee”.
At the beginning of the scheme, the ringleaders take little for themselves and redistribute the money. This reinforces the legitimacy of the scheme because now people are going to testify that this organization does “pay” their “customers”. Ponzi schemes usually have outrageous and too-good-to-be-true returns, sometimes even promising 50% of the initial investment in a little less than a week. This, in turn, draws in more customers with more and more money to buy into memberships.
But as soon as membership recruitment stops for some reason, the whole scheme collapses. This leaves members – especially the newest ones – with nothing but a pile of dust on their wallets. In some instances, people that have been scammed by Ponzi schemes have reportedly lost millions.
Ponzi schemes as investment funds
Now we come to the most important part – how the Ponzi schemes have adapted and worn the mask of an investment fund.
It’s pretty simple, really – in the section above, just replace “membership fee” with “initial investment”. That’s it.
There are minor differences though, which are still pretty important to note. For these types of pyramid schemes, they usually don’t have a set “initial investment” amount – you can invest how much you want (although they usually have a minimum). This makes it easier to lose money as instead of paying for a single membership fee, a victim can now put forward thousands and even millions of dollars, which the ringleaders will now distribute and take their cuts from.
For real investment funds, once you put in the money you can rest assured that somebody else will take care of it for you. This means that, essentially, you can kick back and relax. However, for this service, legitimate investment funds will not promise huge returns and instead usually very little, over a long time. This is because they need to be safe, as they are trading in the financial markets with other people’s money.
Ponzi scheme investment funds, on the other hand, promise you impressive returns if you “sponsor” other new members into the fund. You can make sure that the organization is a pyramid scheme if they need you to work for them to recruit while promising astounding returns.
What makes Ponzi scheme investment funds so appealing
Of course, such devious scams would not advertise themselves as such. You don’t expect anyone to sign up for anything if their main slogan is “We’re actually scams!”
Schemes such as this do their best not to seem like what they really are. They are going to have sleek advertisements and some new, revolutionary way of trading that guarantees their customers 30% returns every day for their investment.
Nobody wants to miss out on such an opportunity – especially not those who have recently lost their money trading on a market that they barely knew. This makes this type of pyramid scheme so attractive because they make it sound believable in the eyes of beginner traders. The financial markets have always been touted as the place where fortunes can be made or broken – this new era of scammers are only riding on that reputation to sucker those who do not know enough.
The reality is, a 30% return on their initial investment is already a difficult thing to do in one year. Doing it in one day is simply impossible. Realistically, a 3% or 5% increase is more closer to what you can expect – add to this the losses that you will inevitably make over time, and the percentage would go much lower.
Avoid it like a plague
Joining a Ponzi scheme is a perfect recipe for financial disaster. You will lose everything you have invested, and more. Not only is financial ruin the most likely outcome of it all, but it may also even affect your relationships as you will be forced to recruit families and friends so that you’ll gain your profit.
Unless you’re one of the ringleaders who will get the real money – in which case you will probably be charged with financial crimes and put to prison.
If you now realize that the “investment fund” that you’ve paid money to is a Ponzi scheme, get out immediately. Take all your money and withdraw it before the system collapses – as it surely will sooner or later. They will most likely let you take your money for fear of being exposed before the right time. In case they don’t, you can report them to the proper authorities and get your lawyer.
Keeping your Binomo account safe
Ponzi scams aren’t the only kinds of scams to exist which are centered around trading the financial markets. One could even write a whole book just from their sheer numbers.
You may come across solo scammers who will promise to help you raise your balance by trading a certain financial asset – if only you fund them in their trading. They may even send you some so-called proof of their track record to lure you in.
Regardless, don’t be fooled. Never give your money to anyone promising you easy returns, and never give your account details to anyone. Should someone approach you and claim to be an excellent trader, they should give you their strategies instead of borrowing your money. Most likely, things like these are scams.
Don’t be lured by easy money. Money doesn’t grow on trees, and it’s no different in trading. You need to learn, practice, and constantly apply yourself to see your rewards. The best way to do this would be to use a Binomo practice account, and learn to trade just like the real thing but without the consequences. Your experiences with your practice account will help you more than scammers ever will.
Good luck on your trading journey with Binomo!