Many of you have written to me to ask for advice on several programs you have come across. I'd hate to be considered a grumpy old naysayer, so I have tried my best in each case to explain why the suggested program is in all likelihood a scam and not worth looking into further. In this article, I will try to expand upon an earlier article, where I revealed common sense to be my most valuable tool in the DD process. Perhaps after reading this article, so will yours! Read More...
Realistic returnsSince the beginning of time, con artists have always lured people with insane returns, returns that truly spark the imagination.This is still the case today and provided you can resist the temptation, you should be very glad it is: it allows you to drop 99% of programs on your “to be looked into” list right now and makes it far more easier to read about and pass on most programs in the future. It is really quite simple: don't even think of joining programs that offer insane returns! But that does not quite solve your dilemma, afterall what are insane returns or more appropriately, what are realistic ones?
Forex tradingMost programs claim to be trading the forex market. In many cases this is simply not true, but the reason behind their statement is actually quite clever: indeed, an excellent ROI can be made from
trading the forex market.
The foreign exchange market ("forex" or "fx") is the place where currencies are traded. Don't imagine a central marketplace for currency exchange, trade is conducted over-the-counter. The forex market is open 24 hours a day, five (and a half) days a week, with currencies being traded worldwide among the major financial centers (London, New York, Tokyo etc). It is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you see how giant the Foreign Exchange really is. It's actually more than three times the total amount of the stocks and futures markets combined! Clearly there is potential here for money making.
So, what kind of returns can be generated through forex trading? Well, the easiest way to answer this question is by looking at a few managed forex accounts: usually accounts with initial deposit requirements of $10,000 and up, with a limited power of attorney. The details are beyond the scope of this article, but suffice it to say: a forex trader trades on your behalf and he takes a percentage (10 – 50%) of the returns in fees.
After fees, most managed forex accounts are able to return on average 5% a month, with of course some months a bit better and some months a bit worse. Better accounts can generate 8% a month on average, with some months returning up to 14-15% a month. The best traders can probably bring in 12% a month or more, but they are much harder to find.
Personally, I think 5-8% a month is good, 8-14% a month is excellent.
Okay, so now what?Hopefully you now have a clearer idea of the kind of returns you should be expecting. Now take a good long look at all those amazing programs... interesting isn't it, lots of them will offer much, much more than that! Those returns aren't realistic, so you can bet they are not based on any trading or whatever. They are the easy to spot ponzi/scams. Actually, this simple check allows you to take off 99% of the programs on your list.
But, life is not so perfectly black and white. There will be programs that make you wonder... could this one be legitimate? Here's a few more things to look for.
ConsistencyA trader is just a human being, not a robot. Consistency is not easy... yes, a great trader can make a 35% return in a month. But can he do so each and every month? Probably not and definitely not unless you have some serious money to work with. And if you see one doing 35% one month and minus two digits the next, you can bet he is taking far too much risk. Too much consistency coupled with a very high return? Forget it, no trading at all taking place...
More to the point: a program offering a guaranteed 15% or even 20% a month is just a scam, as these kind of returns simply cannot be guaranteed.
FeesA real company requires time to track your deposits and earnings and to answer your e-mails and calls. Time is money, so the fee structure can tell you a lot about the program's possible legitimacy.
Take for example transfer costs. Simply put: every financial institute is keen on taking a slice of the money as you move it from one place to the next. Especially in trading, this can add up. To avoid those costs eating away at the profits, most programs will impose minimum investment amounts. None of them will accept your $1 or $10...
A company which accepts a deposit amount which is smaller then the cost of overhead obviously does not plan to speak with you very much or to maintain your records to any great extent.
So why do ponzi/scams focus on such small amounts? First, when they steal the money, you are not likely to be very annoyed over a mere $10 loss. Second, a lot of people will risk $10 on something they think might be a scam while they are less likely to do so with $1,000. Thousands of people risking away their $10 can quickly add up...
Referral bonusesReferral bonuses are a touchy subject. Some people believe that any kind of referral bonus means the program must be a scam, while others believe this only applies to the more 'unreasonable' bonuses. I personally belong to the second group: I think a referral bonus is an excellent incentive for people to recommend legitimate programs to friends and family. Everyone benefits: you get a bonus, they get a great investment opportunity and the company obtains new clients. The troubles begin when the bonus is more than just 'a nice little extra' and becomes a purpose on its own.
Programs that offer big referral bonuses are nothing more than a lure for greedy people. Programs that focus on heavy recruiting by their members do so because they anticipate a short life span. In other words, they want as many people as possible to enroll in the shortest time frame possible. Referral bonuses are generally paid instantly to keep the referral hunters motivated and to give them 'proof' to convince new investors that the program actually pays.
Transfer timeTo do any kind of trading, money needs to move from the various e-currencies to bank accounts and from bank accounts to trading accounts. Hence, it simply takes a number of days for any kind of transfer to be settled, be it deposits or withdrawals. Also, sometimes a trade cannot be stopped with the push of a button, pushing the transfer time up even more. On the other hand, small payments can probably be made from a reserve fund.
Many ponzi/scams pay almost instantly at first, as this puts 'proof' in the hands of investors, who in turn can convince new investors to invest as well.
Hopefully some of these things to look for will help you determine quickly which programs are worth looking into more carefully. Good luck!
