Intro
If you’re asking yourself “Is forex a pyramid scheme?”, the answer is no. But pyramid schemes and other scams are well known in the forex trading universe, similarly to the stock market and real estate and just about any other legitimate type of investment. You need to educate yourself in how to spot a forex pyramid scheme or scam to shield your money and be able to trade forex legally.
The forex market is the largest financial market in the world with a turnover of $6.6 trillion. Banks, large corporations and professional traders are the most active participants in the forex market. With the advance of the the internet and computer technology, the forex market can be accessed by everyday people as well via online forex brokers and trading platforms.
The essence
- Forex trading is a fully legitimate form of investment
- In itself, trading foreign currencies is not a pyramid scheme
- There are many instances of scams and pyramid scheme initiatives related to forex
- Traders must do their homework in learning how to spot scammers in the forex trading universe
What is a pyramid scheme?
Many people mix up multi-level marketing (MLM) and a pyramid scheme. While the two may bear similarities, there is a key difference: MLM is a legitimate business opportunity but pyramid schemes are always an illegal means to stealing people's money.
MLM offers the opportunity to become involved in a system for distributing products to consumers. Instead of having to start a business from scratch, the MLM participant has the support of a company that supplies the products and sometimes offers training as well. Besides earning money from your own sales, you also earn a percentage of the income generated by the distributors that you've brought into the program.
Similarly to MLM, pyramid schemes also recruit people to sell products or services. However, pyramid schemes are fraudulent schemes, disguised as an MLM strategy. Only a few individuals (typically those started the scheme) make money, and when no new people can be recruited, the scheme falls apart and most of the promoters, except the top ones lose their money.
Forex MLM programs and forex pyramid schemes are quite common. Whereas with the former, you may actually make some money (while running the risk of alienating friends and family members you try to sign up for the program), with a forex pyramid scheme you will most certainly lose all your invested money.
Don't be fooled by promises of easy and exorbitant gains with no risks involved and most importantly, never deposit any money unless you are convinced it is a well-regulated online forex broker you are dealing with.
Forex trading is a legitimate form of investment but not a one-way ticket to easily making quick money.
How to educate yourself
For starters, read our article on forex scams and the best ways to avoid falling for one.
Most forex brokers have free courses, webinars or e-books published on their website. They may not even require you to have an account with them to access these materials. It is a good place to start to learn how forex trading works.
One may think that brokers publish educational content that pushes you to trade often, in order to drive up their income from commissions. However, in reality this is almost never the case, and their educational content is generally informative and genuine.
As for daily updates, we found Pepperstone’s daily newsletter, the “Daily Fix”, to be among the better ones – again, it’s completely free.
If you're looking for a forex broker, check out the best forex brokers or read all forex broker reviews. Alternatively, visit our unique broker finder tool for a personalized broker recommendation.
Not sure if a broker is legit or scam? Write to us at [email protected] and our broker experts will answer your questions. BrokerChooser is here to help people invest.
