In this article we answer the question “Is Forex a Pyramid or Ponzi Scheme?”, and the short answer is no.
To understand if forex trading is a pyramid scheme, it’s critical to understand what a pyramid scheme is. A pyramid scheme is a fraudulent investment strategy that relies on recruiting others to generate profit instead of offering any worthwhile service or investment.
Scammers set up pyramid schemes in various niches, including the work-from-home category, which is a broad niche that includes forex trading, crypto trading, and other ways to make money on the internet.
Is Forex Trading a Pyramid Scheme?
So, is Forex MLM? Or is forex trading a Ponzi scheme?
The short answer is no. Forex trading is not a pyramid scheme.
Here are a few key takeaways:
A Ponzi scheme is a fraudulent company that relies on others' investments to pay off earlier investments. Forex trading, by itself, isn’t a pyramid scheme or Ponzi scheme. It’s a legitimate way of trading, but it does come with risks due to its volatility.
The forex trading industry does have many scams, including pyramid schemes. That is due to the lack of regulation – many forex trading platforms and programs are in other countries and don’t follow the rules of governing bodies in countries like the US.
Before joining any forex trading platform, it’s important to investigate it to ensure it is not a pyramid scheme. Check reviews online and make sure that the trading platform is legitimate.
If the platform has an affiliate program, it’s not always a warning sign. If it promotes its affiliate program, and it’s the main way members earn money, stay away.
If you have to pay a monthly fee to use the platform, it’s a clear sign of a scam. Legitimate forex brokers charge fees on your trades but don’t require a monthly fee.
When checking online reviews, look for a pattern that indicates that affiliates are promoting the program by writing biased reviews. If every blog review on the first page of Google praises the platform without any potential disadvantages, it’s a red flag that the reviews are untruthful.
Another red flag is if the reviews use similar templates or the same banners and CTAs. Most likely, the platform is giving its affiliates these templates.
What Is Forex Trading?
Forex trading, or foreign exchange trading, refers to trading one currency for another. It’s one of the biggest markets in the world, with $7.5 trillion in turnover daily. It’s accessible to retail traders on a large scale, unlike other markets, with a low entry barrier.
How Forex Trading Works
Numerous brokers offer the opportunity to exchange one currency for another using an online platform. For example, if you think the price of the Euro will increase compared to the USD, you can trade the USD/EUR pair, selling USD for EUR and again selling your Euros when the price rises.
Since the forex market has a lot of fluctuations, it’s possible to make multiple trades a day and earn a decent profit. Some traders adopt a long-term strategy, using global news events to forecast the long-term price movements of a currency.
Unlike other markets, the forex market runs 24 hours a day, as it doesn’t have a centralized exchange.
How Pyramid Schemes Work
An example of a pyramid scheme is as follows. You sign up for an account on a platform that promises to teach you how to make money online. Instead of teaching you anything worthwhile, the platform requires you to recruit others to sign up and pay for the course.
When you get someone to sign up, whether that person is someone who found your affiliate link online or a friend or relative, you will earn a commission. Often, pyramid schemes require recurring membership for the privilege of being able to make money from their affiliate programs.
Unlike other affiliate programs, pyramid schemes often give you commissions for people your recruits recruit. Here’s an example:
- You pay $100 per month to join the program.
- You recruit Bob and earn a 50% commission on the monthly membership he pays (since he is a tier 1 referral).
- Bob recruits Joe. Bob earns a 50% commission on Joe’s monthly payment, and you make a 10% commission (as Joe is a tier 2 referral).
- Joe recruits Sam. You earn a 5% commission on Sam’s payment, as he is a tier 3 referral. Joe makes a 50% commission, and Bob earns a 10% commission.
That’s where the term pyramid scheme comes from. You’re on the top of the pyramid, and additional referrals have different tiers that pay differing commission rates. Another term for this is multi-level marketing.
How To Spot Forex Scams?
Forex scams come in all shapes and sizes, and pyramid schemes are only one of them. Always use a regulated forex broker, as unregulated brokers may have hidden charges or high spread fees.
Some forex brokers might take your money and allow you to trade but make it difficult or impossible to withdraw your money.
Other scammers say they can help you make money with forex trading by offering bots that will trade for you. These are automated systems that analyze the market and place trades when they determine they might be profitable.
There are some legitimate bots, but most are not reliable. There are no shortcuts in forex trading – learning how to be an expert trader takes a long time.
That’s why it’s worth signing up for a broker that offers a paper trading account so you can practice without losing money. Use a paper trading account for at least 6-12 months before investing real money.
It’s important to learn about different forex trading strategies and test out different ones to see which one works best for you. Some traders make a lot of trades daily, while others prefer a more long-term strategy.
Are Pyramid Schemes Always Scams?
Even if a platform has a multi-tier affiliate program, it doesn’t always mean it’s a scam. Many legitimate platforms have affiliate programs that reward you for recruiting others.
For example, if the platform offers a legitimate forex trading platform that allows you to trade currencies, it might not be a scam. Another example might be if the program promises to teach you how to make money online and offers a course that provides value and high-quality information.
Pyramid schemes that rely on recruiting others to make money are scams. Many programs disguise themselves as legitimate by offering low-value products. Let’s go back to our example of a program that teaches you how to make money online. The program might provide a low-value course that doesn’t offer much value.
Many multi-level marketing schemes require you to sell products and earn commissions on those products. Those products are often low-quality, and the primary way people who join the program make money is by recruiting others.
Some warning signs that a program is a pyramid scheme can include the following:
- The primary way to make money is by recruiting others.
- Any products, courses, or information the platform offers are low-quality.
- You must keep paying a monthly fee for the privilege of being able to refer others.
- The platform uses shady sales tactics, promising to show you how to make a lot of money in a short time (get-rich-quick schemes) or making unrealistic promises about how much you can earn.
So is forex trading a pyramid scheme? Forex trading isn’t a pyramid scheme, but pyramid schemes do exist in the forex trading industry.
Any platform that relies on its members to recruit others to earn money is likely a pyramid scheme. Do your research, read reviews online, and make sure the broker is regulated before joining a platform.