Is Forex a pyramid scheme? How to spot and avoid scams?

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Traders Union experts answer the question: Is Forex a pyramid scheme? How to spot and avoid scams? Forex is an absolutely legal and safe way to generate income. Real brokers give clients access to real financial markets. Before working with any Forex broker, it is necessary to conduct a detailed check.

There are various myths involving Forex. One of them is that the entire Forex conglomerate is just a giant deception; and that it is impossible to make money through brokers. It is worth admitting that there are scammers among companies, indeed, and traders often encounter them.

After such misplaced "cooperation" the traders are left with unpleasant impressions, which fuels the myth that Forex is illegal and fraudulent. Therefore, before starting to trade, many people ask themselves the question: Is Forex a pyramid scheme?

However, is the myth that all financial markets are hoaxes and pyramid schemes true? In fact, most brokers work well within the laws and regulations, but nevertheless, you need to know how to identify a Forex scam. Let's figure out which Forex trading pyramid schemes exist, how to recognize a scam, and what you need to consider when choosing a genuine broker.

Forex trading is not a pyramid scheme, but there are many scammers on the international financial market.

Is Forex a pyramid scheme?

There are many brokers and investment projects in the world that are actually pyramids. They can be divided into two types:

  • 1

    Classic pyramid.

    It is constructed in such a way that each subsequent user finances the income of the previous victim. The profit is paid from the newly attracted deposits. As soon as the influx of deposits halts, the pyramid simply collapses, and the unpaid funds remain with the organizers.

  • 2

    Fraudulent projects.

    Such companies work easier - they simply do not pay anything to anyone, but set unrealistic demands, such as “stall for time,” and create excuses why withdrawals can not occur “at this time” under convoluted pretexts.

As a rule, both types of projects are aimed at inexperienced investors who seek to obtain very large benefits.

How to spot a financial pyramid

There are several signs of the Forex pyramid scheme that are worthy of closer inspection because they are actively used by cybercriminals. Consider the Top 5 options.

Forex scam promises ultra-high profitability

Forex scam promises ultra-high profitability

One of the most popular options for luring clients is ultra-high yield. The companies promise that you will be able to make fantastic profits that go up to several thousand percent per annum.

In this case, the fraudster relies directly on the client's greed. It may be hard to resist when huge profits are promised. Therefore, many clients agree with the company's proposal, which is nevertheless a Forex scam.

Forex pyramids usually have an opaque earning mechanism

Forex pyramids usually have an opaque earning mechanism

“You just invest money and make a profit”. This is the slogan often used by Forex pyramid promoters. At the same time, there is no specific explanation of where the money comes from.

On the site of the pyramid, they write common phrases - for example:

  • 1

    “You receive dividends from investments in Forex”;

  • 2

    “We increase your deposit by trading with various assets”;

  • 3

    “Experienced managers invest your money in stocks”, etc.

If the site lacks specifics about where your funds are invested, you are likely in front of an ordinary Forex pyramid.

Deceptive simplicity of earning income

Deceptive simplicity of earning income

Another important trick used by scammers is playing on the inexperience of the investor or on the desire to make money “lazily”. The main appeal, in this case, is: "invest, and our specialists will do everything for us, and you will only receive colossal profits."

For such “statements” to inspire at least some confidence, they must be confirmed. For example, this should be confirmed by the disclosure of the manager's identity and his real statistics. Often, Forex pyramids do not even indicate the names of their team members. If any statistics are simply written on the site, but there are no links or confirmations, you should not trust them.

Usually some documents are missing

Usually some documents are missing

Any financial institution must operate under the laws of the state or country in which it provides services. And the legality of the activity is confirmed only by documents. If the company does not have a complete set of legal and other documents, refuse to cooperate with it.

Highly rewarded multi-tiered affiliate programs

Highly rewarded multi-tiered affiliate programs

Another clear sign of the Forex pyramid is multi-tiered programs with solid bonuses. It doesn't matter if the company is a classic pyramid scheme (pays rewards to old customers through new deposits) or an ordinary scam (pays nothing to anyone). But its main goal is to attract as much money as possible. For these purposes, there are multi-level affiliate programs.

Typically, such companies operate multi-tiered programs. The levels are as follows:

  • 1

    Level 1

    your direct affiliates;

  • 2

    Level 2

    participants invited by your affiliates;

  • 3

    Level 3

    users invited by your affiliates' partners.

For each registration like that, the pyramid invites customers to receive a reward. They can vary.

Let's consider an example of such an affiliate scheme below.

  • 1

    1st level — 10%;

  • 2

    2nd level — 5%;

  • 3

    3rd level — 2%;

Five tips to avoid Forex scams

It is quite easy to identify a Forex pyramid scheme. Before you start working with a broker or an investment pyramid, you first need to do a little background check. We offer 5 tips on how not to face fraudulent projects or pyramids.

1

Check documents

In order not to face a Forex pyramid scheme, first, it is necessary to conduct a detailed check of the company's documents.

In particular, before registering, check the following:

The registration certificate and license, ideally, should be presented on the website in the form of scanned copies or links to the regulator's websites. As a rule, the pyramids of these documents are not published. The company should have licenses from reputable regulators such as Great Britain, the USA, and European Union countries.

Some companies under the guise of a license provide certificates of some "Licensing Centers". However, you should not trust them.

2

Are there any reviews?

Customer reviews are an essential part of any financial company audit. Users can not only describe their experience with the platform but also pay attention to some aspects that you might have missed. For example, these may be questionable provisions from the User Agreement.

However, if there are no reviews about a platform that positions itself as "time-tested", you should not believe the information from the site.

Many pyramids publish reviews on their website, but you shouldn't trust them. It is best to read customer opinions on independent platforms, in the discussion of reviews, or directly on “reviews.” For example, such a platform is Traders Union, where you can always find objective reviews from real customers.

3

Is the income generation scheme transparent?

The pyramids promise huge returns, but nothing backs it up. Such companies hide data on how exactly they increase the capital received and how they make money on it. Before investing, be sure to learn the methods of generating income in the company.

The investment platform or broker whose products you want to use must indicate how you can multiply your funds. If this is an investment in securities, you need to know how companies choose assets, and for how long they invest.

4

Make sure the company has contacts

Often, pyramid schemes do not leave any contact info for communication. Instead, the broker or investment platform only provides an email form and a callback form.

Before starting to work with the platform, it is recommended to check the following information:

  • 1

    physical office address;

  • 2

    email address;

  • 3

    phone number;

  • 4

    the availability of communities in social networks and contacts in messengers.

In addition, we recommend that you not only check for contacts but also use them. Call the company by phone or email, ask any question, and assess the person’s knowledge of Forex trades.

5

Review internal company documents

The main internal documents of brokers and investment platforms may have the following names:

  • 1

    User Agreement;

  • 2

    Terms and Conditions.

These documents can contain a lot of valuable data.

In particular, the following points may be described in the user agreement:

  • 1

    blocking an account without notifying the user;

  • 2

    a ban on withdrawing funds without justified reasons;

  • 3

    cancellation of bidding results.

If the documents contain such provisions, it is dangerous to cooperate with such a company.

In addition, you should pay attention to the availability of company details.

In some cases, brokers or investment platforms do not bother at all with the development of internal documents. If you see something like this - most likely, you have a pyramid in front of you.

Forex trading pyramid scheme examples

Doubtful brokers and investment platforms come up with all kinds of pyramid schemes. As an example, consider the 770Capital platform, which was blacklisted by Traders Union Forex brokers. Today the pyramid has ceased to exist and its site is no longer available.

Forex trading pyramid scheme examples

Forex trading pyramid scheme examples

The broker was owned by the management organization 770 INVESTMENTS LLC, registered in Saint Vincent and the Grenadines. It is an offshore jurisdiction that does not disclose company information. The company did not have a license for financial activities.

From the contact information, only the international telephone number and legal address allegedly in Bulgaria were known. The company hid email data and there were no pages or channels on social networks.

The 770 Capital pyramid was built around a very profitable affiliate program. The broker promised 15% of the affiliate's top-up amount. The company existed as long as there were partnership deductions. However, after the pyramid collapsed, everyone who was a client lost their money. Traders in their reviews frequently complained that their broker refused to permit traders to withdraw funds.

Thanks to reviews of the 770Capital pyramid on Traders Union, many people have managed to avoid falling for the scam. If you are offered to participate in a dubious project, write your review on the site. This way you can help traders protect their funds.

Can I earn profits in a Forex pyramid scheme?

In theory, Forex pyramids can bring some profit to clients very infrequently. Occasionally, a fraudulent company pay out a few dollars to prove that they are indeed delivering the promised profitability and to entice the client to increase the amount of the deposit even more. But it’s just a trick. Is it really worth risking all your money in the hope of making a tiny profit? We do not recommend cooperating with Forex pyramids. Full stop.

The likelihood of making real money with a Forex scam is extremely low. Even if you make a profit temporarily, it is unlikely that it will be large.

At its core, is Forex a legal and safe entity?

Forex trading is legal in most countries, though it is regulated differently across jurisdictions. Major Forex markets like the United States, United Kingdom, Japan, Australia and Canada have legal frameworks that govern Forex trading activities. Trading currencies is generally considered lawful and safe when done through regulated brokers that are required to be licensed and adhere to strict standards enforced by authorities. Regulators require brokers to maintain fair trading environments, segregate accounts, hold minimum capital levels, submit reports, offer negative balance protection, disclose risks, and more.

Moreover, regulated brokers offer investor protections. Regulatory agencies can conduct investigations, ban fraudulent brokers, and work to compensate traders who lose funds due to broker malpractice.

Top 5 legitimate brokers you may consider

It is possible to trade Forex or make investments only through trusted brokers with a good reputation. In this case, you will surely avoid the pyramid scheme. We bring to your attention five companies that have proven themselves in terms of reliability, safety, and favorable opportunities for traders.

Min. deposit Markets Regulation
FxPro

100 USD

Forex, CFDs on stocks, commodities, futures, indices

Great Britain, Cyprus, South Africa, Bahamas

XM

5 USD

Forex, stocks, CFDs on stocks, commodities, indices

Cyprus, Belize, Australia

AdmiralMarkets

100 USD

Forex, stocks, ETFs, CFDs on stocks, commodities, indices, ETFs

UK, Cyprus, Australia

Avatrade

100 USD

Forex, Crypto, options, CFDs on stocks, bonds, ETFs, indices, commodities

Ireland (EU), Australia, South Africa, Japan, Abu Dhabi, British Virgin Islands.

FxTm

10 USD

Forex, CFDs on stocks, commodities, indices

Cyprus, UK, South Africa, Mauritius

FxPro

fxpro-logo

The company operates under the licences of four strict regulators:

  • Great Britain - FCA

    Great Britain - FCA # 509956

  • Cyprus - CySEC

    Cyprus - CySEC # 078/07;

  • South Africa - FSCA

    South Africa - FSCA # 45052;

  • The Bahamas - SCB SIA

    The Bahamas - SCB SIA-F184.

All licenses listed can be verified. They are presented as clickable links on the site.

The FxPro broker provides over 200 trading instruments, including Forex currency pairs and CFD derivatives. Futures trading is available. The company offers margin trading with a maximum leverage of up to 1:500.

Trading on FxPro is carried out on a proprietary terminal, called the FxPro Trading Platform. There are also standard platforms such as MT4, MT5, and cTrader. Automated trading is also available.

XM Group

XM Group

The company has been operating since 2009 and operates under three licenses:

  • Cyprus - CySEC

    Cyprus - CySEC 120/10;

  • Australia - ASIC AFSL

    Australia - ASIC AFSL # 443670;

  • Belize - IFSC

    Belize - IFSC No. 000261/106.

During its tenure, XM has received more than 35 awards.

The company provides access to 1300+ trading instruments, and the broker provides clients with five trading accounts, including one specialized for trading real stocks.

The broker provides standard platforms, MetaTrader 4 and MetaTrader 5, for traders. The XM Group is the official partner of the MQL5 copy trading service. In addition, it is worth noting the attractive bonus policy of the broker.

Admiral Markets

Admiral Markets

The company has been providing trade services since 2001, and has received three licenses from the following regulators:

  • Great Britain - FCA

    Great Britain - FCA # 595450

  • Cyprus - CySec

    Cyprus - CySec # 201/13

  • Australia - ASIC AFSL

    Australia - ASIC AFSL # 410681

You can check the licenses on the official websites of the regulators and the documents are freely available.

The broker offers clients over 3,500 assets and instruments to trade. In addition to currency pairs and CFDs, you can work with real stocks and invest in ETF funds. The choice of terminals in the company is the standard MetaTrader 4 and MetaTrader 5. You can connect to a VPS server.

AvaTrade

AvaTrade

The company works officially and provides brokerage services under the following licenses:

  • Ireland - Central Bank of Ireland

    Ireland - Central Bank of Ireland No. C53877;

  • British Virgin Islands - SIBA

    British Virgin Islands - SIBA / L / 13/1049;

  • Australia - ASIC AFSL

    Australia - ASIC AFSL # 406684;

  • South Africa - FSCA

    South Africa - FSCA # 45984;

  • Japan - Financial Services Agency

    Japan - Financial Services Agency # 1662 and Financial Futures Association of Japan # 1574;

  • Abu Dhabi - FRSA

    Abu Dhabi - FRSA # 190018.

All licenses are available as clickable links on the broker's website, so you can easily review them. The company also has a page on the Trustpilot review service.

AvaTrade provides ample opportunities for traders. In particular, more than 250 types of trading instruments are available here, including 50 currency pairs. The broker offers trading with real cryptocurrencies. AvaSocial is the social trading service that is available to generate passive income.

FXTM

FXTM

The company provides services pursuant to the following licenses:

  • Cyprus - CySec

    Cyprus - CySec No. 185/12

  • South Africa - FSCA

    South Africa - FSCA No. 46614

  • UK - FCA

    UK - FCA # 600475 and FCA # 777911

  • Mauritius

    Mauritius - C113012295

The company offers clients over 400 assets and trading instruments. Of these, 160 are types of real stocks of American and European companies. The company has its own trading terminal, which is the XTM Trader. MT4 and MT5 platforms are also available and Automated trading is supported.

Expert Review

The Forex market is an absolutely legal and safe way to generate income. The profit you make in this way is no different from the profit that you get by exchanging currencies in a physical exchanger. However, Forex provides such rich opportunities for earning that scammers seek to take advantage of it. Unfortunately, there are a lot of them.

There are hundreds of schemes for Forex pyramids. It all depends on the ingenuity of the scammers. Some schemes turn out to be so simple and obvious that it's even surprising how people agree to the terms. If you discover that you are being offered participation in a Forex pyramid, leave a review on Traders Union. This way, you can alert other potential victims of the danger.

Before working with any Forex broker, it is necessary to conduct a detailed check. But the main thing is to be realistic and not be led by profitability that is too high and colorful promises!

Anton Kharitonov

Anton Kharitonov

Traders Union Analyst

FAQ

Can forex trading be a pyramid scheme?

No, forex trading itself is not a pyramid scheme. Forex trading involves buying and selling currencies with the goal of profiting from fluctuations in their value.

How do forex pyramid schemes work?

Forex pyramid schemes are fraudulent activities that are designed to take advantage of unsuspecting investors. Typically, these schemes involve promising high returns on investments in forex trading, but in reality, the returns are generated through a pyramid-like structure where early investors are paid with money from new investors.

Is forex a get rich scheme?

No, forex trading is not a get-rich-quick scheme. While it is possible to make profits through forex trading, it requires a lot of knowledge, experience, and discipline.

Why forex is not a pyramid scheme?

Forex trading is not a pyramid scheme because it is a legitimate financial activity that takes place in regulated financial markets around the world. Unlike pyramid schemes, forex trading involves buying and selling currencies based on market fundamentals and technical analysis.

Is a license a guarantee of the broker's honesty?

Brokers licensed by reputable regulators guarantee you the withdrawal of funds and the absolute honesty of the company.

The broker offers to pay some kind of "insurance" for the withdrawal. Is it worth it?

No. Not in any case is it worth it! The broker is obliged to allow the withdrawal of funds without any additional conditions. Any “surcharges for withdrawal” are a sign of a pyramid.

Is it possible to obtain the withdrawal of funds from the pyramid through the courts?

In most cases, it is impossible to successfully sue the pyramid promoters. First, you need to file a petition at the place of registration of the company. Second, it is often not known who to sue, since the pyramid does not provide information about itself. Third, the User Agreement is usually drafted so that the client cannot succeed in court.

The broker says that it is not necessary to obtain a license in the jurisdiction where it is registered. Is that possible?

Yes, but only in some offshore jurisdictions with minimum requirements for companies. For example, licensing is optional for Saint Vincent and the Grenadines. However, offshore jurisdictions are generally unreliable. Therefore, if you are told that a license is not required in the country of registration of a broker, think about whether it is worth the risk of working with it and whether it is a pyramid scheme.

Team that worked on the article

Ivan Andriyenko
Author at Traders Union

Ivan Andriyenko is a financial expert and analyst. He specializes in trading in the Forex, stock and cryptocurrency markets. His preferred trading style is conservative strategies with low or medium risk, medium and long-term investments. He has 7 years of experience in the financial markets. Ivan is involved in preparation of articles for novice traders, and also of the reviews and evaluation of brokers, analyzing their reliability, trading conditions and peculiarities.

Ivan continuously tests new strategies for various assets, choosing the most effective options. In addition, he believes that helping novice traders is an important aspect of work. He shares information that beginners require – educational materials, strategies.

Ivan’s motto: continuous studying and experimentation lead to success.

Dr. BJ Johnson
Dr. BJ Johnson
Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.

Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.

Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.