Beware of forex pyramid schemes

By Dominic Walsh

A forex pyramid scheme is a type of investment scam that focuses on the foreign exchange (forex) market.

These schemes promise high returns with little risk but in reality rely on a continuous stream of new investors to keep the operation afloat.

What is a forex pyramid scheme?

A forex pyramid scheme operates by focusing on recruiting new investors rather than actual forex trading. The founders will make bold claims about high profits to be made with little knowledge or effort in forex markets.

This attracts an initial round of investors who pay an upfront fee to participate. However, forex trading is complex and the reality is most amateur traders lose money.

Where do the promised returns come from?

They rely entirely on money from new recruits to pay off early investors. As long as new investors keep joining, pay-outs can continue. But this unsustainable model inevitably collapses.

Common tricks used by forex pyramid schemes

Those running forex pyramid schemes are masters of manipulation and will use every trick imaginable to make their scam look legitimate.

Common tactics:

1. Fake trading performance

Forex pyramid schemes will fabricate trading results to make it appear members are profiting handsomely from markets. But the performance is completely fake. No actual trading takes place in the accounts.

2. Multi-level marketing structure

Schemes will focus heavily on recruitment over trading. The goal is to get each victim to recruit additional members. The more recruits you have, the bigger pay-outs you receive. Classic pyramid structure.

3. Claiming special market knowledge

Scheme leaders pretend to have special insights or advanced algorithms that give them an edge in trading. This is all fiction designed to get people to invest in their false promises.

4. Registered business entities

Pyramid schemes will often register as formal corporations or limited liability companies. This creates the illusion of being a legitimate business when in reality they are fraudulent to the core.

5. Paid shills

Leaders pay early investors to provide glowing testimonials to new recruits. These reviews are completely dishonest and hide the fact most participants lose everything when schemes eventually collapse.

Warning signs of a forex pyramid scheme

Many victims of forex pyramid schemes do not realise they have joined one until it is too late. But there are plenty of red flags to spot early:

Guaranteed returns — No legitimate trading programme guarantees profits as markets are unpredictable. Consistent high returns are a myth.

Complex fee structures — Schemes have all sorts of hidden account, subscription, and maintenance fees that slowly drain your account.

No transparency — You have little visibility into actual trading accounts. At best there are forged account statements.

Overselling easy profits — Forex trading takes knowledge and skill developed over years. Get rich quick is not realistic.

Recruitment focused — The scheme pushes adding more members over everything else. Trading accounts become an afterthought.

Leaders with questionable pasts — Founders may have histories of investment fraud or other financial crimes.

Unregistered — Pyramid schemes typically will not register with financial regulators or operate in countries with weak regulation.

While forex scams show no signs of disappearing in 2024, the good news is they can be avoided by following simple precautions:

Check registration — Deal only with registered, regulated forex brokers and advisors in your country. Unregistered entities have higher fraud risk.

Verify leaders — Research founders, directors, and others running operations. Look for red flags in their histories.

No guarantees — Avoid programmes guaranteeing returns or minimising risk. All trading has uncertainty.

Understand fee structure — Complex fee structures or account requirements can hide ill intentions.

Start small — Test new programmes with minimal amounts first. Do not commit your life savings all at once or feel pressured to invest more until confident it is legitimate.

Forex pyramid schemes thrive on the lack of understanding most people have about forex markets. Forex trading can be profitable but requires significant knowledge, skill, and experience. Stick to registered advisors and use extreme caution before investing.– medium.com