In the world of finance and online trading, you often try to get large amounts of money in the shortest possible time. This is certainly not an easy goal to achieve, which would require decades of in-depth knowledge of the sector and various experiences. Over time, however, it has happened that some individuals promised these easy gains to various users. In particular, the so-called Ponzi scheme should be considered.
Generally, an individual proposes a large gain in a very short period of time. This profit, sponsored as 100% secure, will simply require a small amount of initial money to pay. This individual will tend to pay regularly the first “installments”, without worrying particularly about going temporarily in red, or thanks to small fortuitous gains. Once the system is in place, this person will look for other investors to rely on, thus expanding their circle of people who can provide them with money. Obviously, when a certain moment comes, the creator of this great mechanism will tend to disappear, causing the participants’ money to be lost.
The Characteristics of a Ponzi Scheme
As mentioned, this pyramidal system will always tend to collapse like a sand castle. In fact, this mechanism is not based on obtaining new money through ocular investments, but simply by moving the money obtained from new users to the first participants.
This system thus manages to keep the first investors hooked to the promise of earnings, spreading the word and getting as many people into the system as possible. The money invested by these last users will be partly delivered to the previous ones, deceiving them to have succeeded in obtaining important profits.
The one who implements a Ponzi scheme, promises great profits in the short term, deluding the “customers” to be a great expert in the field, thus making him believe that he is in good hands. This method is effective for many reasons, including proposing the idea to people outside the world of finance. These people, at the sight of immediate profit, will tend to fall easily into the trap.
In many countries the Ponzi scheme is considered illegal, being considered a real scam.
The Origin Of The Name: Ponzi Scheme
This system of fraud, takes its name from Charles Ponzi, Italian immigrant to the USA in the early ‘900. He was not the first to use this method, but he made such a stir that he was given the name. Ponzi landed in Boston, and traveled the east coast of the United States in search of fortune. After also being in prison on charges of fraud, he decided to implement a plan capable of involving many people.
With the implementation of the scheme Ponzi managed to cheat as many as 40,000 people, thanks to which he earned a large amount of money, but then end up in prison.
How to Recognize a Ponzi Scheme
Over time, several people have tried to use this mechanism to obtain money illegally. Thus, the SEC, the U.S. federal body responsible for supervising the stock exchange (our Consob correspondent), has decided to publish a list of points to be careful not to fall into the trap of a Ponzi scheme.
This system is presented as a low-risk, high-yield investment. In the world of finance, anyone who wants to make high profits must always worry about high levels of risk.
The gains offered are not only given as safe, but also as constant over time. Obtaining a certain and constant investment is very difficult, unless it is to buy government bonds or other fixed income investments. No market or financial broker can ensure a steady return over time, especially when it comes to stock markets, their trends and ups and downs make fixed income unlikely.
Those who rely on a ponzi scheme generally tend not to register their investments with the authorities. It is always advisable to invest only in registered companies, in order to be able to obtain information about the management and the economic and financial conditions of the company or of the person who advised you on a certain investment.
Similar to the previous point, it is necessary to verify that the financial operator you rely on has a license, or that it is in accordance with the law.
Often many fraudulent investments do not explain their action plan, but sell their success through secret or unclear strategies. In this case, it is very likely that it is a fraud, and it is advisable to stay away at all times.
Companies and companies that operate in the financial markets regularly issue the various documents necessary for shareholders to understand the company’s performance. These reports are often clear, comprehensible and without inconsistency, in case they are not regular or missing altogether, there is a chance that you have fallen into someone’s trap.
It’s important to make sure you receive your payments as agreed. Those who set up a Ponzi scheme are not able to return money to all investors, and will tend to make excuses to delay such payments, promising additional interest as well.
Bitcoin and Ponzi Scheme
Recently, the “Ponzi scheme” has returned to the attention of public opinion about Bitcoin. In fact, many people wondered if the BTC was not a Ponzi scheme and the official website of the cryptocurrency wanted to answer this question, in this official page.
In the world of finance it is always necessary to be careful, analysing all possible investments. A too tempting offer could conceal a scam and put investors’ money at risk. It is always necessary to seek a middle way between gain and risk, large gains will always lead to strong risks.