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Comment by GhostVII | Hacker News Reader

They aren't making money with forex trading, they are making money with their pyramid scheme. You sign up for their class, and pay $50 for a membership, and then each person with the membership turns around and sells it to more people. Pretty disgusting. IM academy is at least one version of this.

How does the article not call this out? It even says

Just how much of that is paid for by trading profits is unclear, and influencers usually make their money by selling private courses or learning materials or by offering premium access to trading tips for a fee. Others work on commission and are paid by brokers each time one of their followers opens an account. And in some places, the lure of forex trading is simply that it offers the possibility of a regular income.

Classic pyramid scheme. It works great in poor countries since people aren't as educated, and are more vulnerable to get rich quick schemes. Same reason MLM's in the US target immigrants.

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Pyramid schemes, MLMs, and even Ponzi schemes are very popular in developing countries. Strangely, participants seem to pile in despite knowing up front that they’re joining a scam.

I think people have recognized that MLMs, pyramid schemes, and Ponzi schemes are lucrative for early adopters and those at the top. Instead of avoiding the scheme altogether, they’re racing to cash in early before it collapses. It’s a gamble that they’ll be on the right side of the trade before it runs out of steam. The power of “but what if it works...”

Some of the more blatant Ponzi schemes operate in the open for years in developing countries. There can even be public outrage when governments try to intervene because so much of the population is invested in these schemes in one way or another. A good example is MMM global: https://en.wikipedia.org/wiki/MMM_Global

I don't know why that's strange, it's basically the same as GME was over here

Is. GME is still going.

I don't think it's fair to call the GME short squeeze a scam, it was just a community taking advantage of the mathematics at the time. There wasn't any misleading information or false promises, just people FOMO'ing in with the bubble.

EDIT: Also GME is at 240, it's not even a short squeeze anymore it's just bizarre

The small kernel of truth at the heart of it makes that much better of a scam. A pump and dump works better if in the pump stage, you have a good sounding reason.

Did you see the posts on WSB and /r/stocks about the claimed AI model that predicted the price would go to $100K? The original short squeeze narrative wasn’t really honest or accurate in the way it was presented. It was the narrative and the hype that drove the price up, combined with some gamma squeeze. The narrative about the “Mother Of All Squeezes” as they keep referring to it is not accurate.

I guess but then again there's almost 10 million people now on WSB - and people can say anything.

I'm not sure how this is different from say bitcoin, where I've heard estimates of "100k by the end of the year" since 2016

You’re exactly right. Bitcoin investors make their money by convincing people to buy Bitcoin and never sell it (HODL).

Before anyone claims it’s the same for stocks: It’s not. Stocks are an actual claim on underlying businesses, their cash flows, IP, and their assets. Bitcoin’s attraction is that it has no underlying fundamentals to compare against, so proponents can say it’s going to whatever price they want and no one can point out how silly that is. As long as people continue buying, the price goes up. Why are people buying? Because the price goes up.

Yeah but these bitcoin HOLDrs are also convincing JP Morgan, BNY Melon. Surely these professional financiers aren't unsophisticated ponzi scheme victims?

https://www.wsj.com/articles/bitcoin-to-come-to-america-s-ol...

https://www.bloomberg.com/news/articles/2021-02-25/investors...

> Stocks are an actual claim on underlying businesses, their cash flows, IP, and their assets.

This is not true.

If you buy a share of GOOG, you have zero claim on any of Alphabet's cash flows or assets.

The company doesn't pay a dividend and doesn't expect to pay a dividend in the future. So there's no income potential.

There is no scenario under which you can convert your share into any of the company's intellectual property or physical assets.

Your share doesn't even give you the right to vote on anything.

There is only one thing you can do with your share, and that's sell it to someone else.

So the only conceivable purpose in buying GOOG stock is the hope you can sell it to someone else for more than you paid.

GME is the example I chose above, but Bitcoin works just as well

The GME craze doesn't rely (or at least doesn't appear to) on people joining and perpetuating the scheme.

I'm not aware of any long-term meme-stock trading "strategies" being peddled around - it's pretty clear that it's mostly gambling and people are simply making one-off bets.

On the other hand, the various "trading" schemes (whether Forex or crypto or binary options) typically rely on the promise of long-term, sustained profits, buying various courses or trading tools and referring other people to it.

The GME craze absolutely relies on people joining and perpetuating the scheme. The price only goes up because Reddit-tier idiots keep buying. Instead of old school pump tactics, the pumpers used memes and hivemind manipulation, but it's still just a standard pump-and-dump. The "short squeeze" was the kernel of truth that it made it all the easier to sell idiots on the scam.

> The GME craze doesn't rely (or at least doesn't appear to) on people joining and perpetuating the scheme.

Yes it does. The entire WSB narrative encourages everyone to buy more GME and never sell it. They’re not doing this as a favor to readers. They’re doing it because encouraging others to buy and hold is what drives the price up. Their “mother of all short squeezes” theory doesn’t match reality at all.

I love how the options spread traders are flying completely under the radar.

I have never seen a more lucrative spread market.

Every time these diamond handers have this thing range bound for a few days, spread traders are making like how many percent? A hundreds?

Sure these occasional blow offs can wreck the position, but its limited risk.

It does.

GME doesn’t issue dividends and they will need to sell stock to change course, this requires even more new investors than now to perpetuate.

There is an arbitrary distinction between pyramid schemes and respected financial realities. It isn’t really useful to draw the line, just play the game or don’t.

> it's basically the same as GME was over here

Still is. GME was $2.50-$20 across years. Now it's magically $239 (up 22% as I write this); up ~500% in ten trading sessions or so. It's a twisted joke on a whole lot of amateur investors that think they'll be the ones to successfully navigate the pump & dump and get out before it crumbles. The party will no doubt continue until the music stops (treasury yields rise too high).

People replying to you claiming that the GME hype wasn't a scam is just great proof that the suckers will always be with us.

Politicians have an advantage when joining it

People often believe they will be able to leave before the pyramid crashes. Which of course doesn’t make sense, statistically it’s very clear the vast majority will lose everything when the insiders start to crash out or are arrested, with no way to get their money back when everybody is rushing to leave the scheme.

The common say is that most car driver believes they are above average. ¯\_(ツ)_/¯

> ...statistically it’s very clear the vast majority will lose everything...

The same is true for state lotteries and other forms of gambling, but many people continue to participate.

I think of it like buying useless items too. "The state of anticipating and desiring a product may be inherently more pleasurable than product ownership itself." [0] This is very similar to gambling where you are essentially paying for the opportunity to feel hope.

[0] https://www.theatlantic.com/health/archive/2013/01/study-wan...

Regarding lotteries, yes, with one difference, at least based on my personal experience: where I'm from state lotteries have to distribute all their gains to local charities, associations, sport clubs, etc. In fact they are the largest supporter of small associations. Because of this you don't have the risk of making the few people managing the lottery rich while everybody becomes poorer, it's more a way to gamble small amount of money and feel that you support local stuff. It's not for me but that doesn't sound too bad to be honest.

I don't know about the US.

I think the problem with schemes like this forex one is that you can legitimately make money in a fairly low risk way if you are selling the training/entry fee. You just pay $50, or $200 or whatever to be a part of the org, and then convince a bunch of people that you are getting rich off of forex and that they need to buy in as well. The people who lose are the ones who actually try and trade forex, rather than selling courses since they are paying an upfront fee to participate in a 0 sum game.

Of course at some point you run out of customers and it collapses, but there are a lot of people in the world who are interested in getting rich off trading.

Pyramid schemes, MLMs, and Ponzi schemes are popular also in "developed" countries if the operator finds an unfamiliar topic under which to run their scam.

The early adopters are also generally equally fervent in supporting the scam and believing "it will work in the end".

For example, Finland, one of the top performers in Pisa scores had a famous scam using -yes - foreign exchange trading as it's angle "https://en.wikipedia.org/wiki/WinCapita

MLM is hugely popular with certain immigrant populations and religions in the US.

We must have been reading vastly different articles

> Business has been good. “I make over $30,000 annually from forex trading now,” he revealed — a tempting figure in a country where public servants are paid some $177 a month. His earnings come mostly from his own trading, with student fees making up a small part.

Speaking from experience (I'm from Kenya), I've seen people make big bucks from Forex trading. A friend of mine makes enough money to pay for his rent (~$200 PM), furnish the house with not-so-cheap furniture and maintain his excessive lifestyle.

There may be a 'pyramid scheme' aspect to it, but it's not as rampant as you make it seem.

The people being interviewed are the ones selling their courses to others. Of course they’re going to claim it’s very lucrative. If someone was losing money from something they’re trying to sell, they wouldn’t go on record with a newspaper proclaiming their losses to the world.

Perhaps, but at this point you're just assuming they're scoundrels. The article says he makes most of his income from trading. The first week of his course is free. It's $50/week after that. This is not a Bezos level of wealth.

Actually, one time payment of $50 for a lifetime access. Still high for their salaries though, it'd be something like $2,000 in US.

You are aware that trading is a zero-sum game and that for every winner there's a loser who took the other side of the bet?

this is sort of a simplistic take. not everyone has the goal of making money on every single trade. say I buy some security from you, not because I expect it to go up, but because I believe it is uncorrelated with my other holdings. you realize a capital gain, and the value goes down the next day. did I lose? not really; we just had different goals.

edit: maybe a better example. I am confident in $SPCE over the next six months, and I want to open a long position. I want to slightly reduce the risk though, so I also buy an OTM put from you. $SPCE keeps going up, so the put expires worthless. we both won here. you collected the premium and I got into a long position that I wouldn't have otherwise.

Short term yes, long term no.

Care to elaborate? Are you saying that long term every trader makes money?

Long term non-trader money is also part of the market (stock buybacks, dividends).

These stocks represent part of existing companies. If these companies do well the stockholder will/might receive extra dividends. So if you have stocks of a single company then you will make money in the long run if the company does well (and vice versa). Generally people do not trust a single company, so if you diversify (different strategies apply here) you can make your outcome dependent on a countries economy or the world economy (if the world economy does well, your portfolio will do the same)

Oh sorry, I wasn't precise enough. I meant specifically forex traders (because the article was only about forex traders). Since currencies are not cash-flow producing assets, I don't see how, on average, everybody can end in the money.

About stocks I absolutely agree - history tells us there's a long-term positive (US) market return so it's clear that an average investor should get exactly that return minus costs/fees.

This is a good point. One could argue that some people buy currency on forex to use it for a different business which gives them a gain. So your selling benifits them and you.

I have a data point from South Africa. My younger brother and our cousin, have nagged me in the past years to teach them 'how to trade'. Normally they would mean the process itself + some technical analysis.

Our cousin is 2 years ahead of my younger brother. He makes enough to find his side-lifestyle (he also works). My younger brother is still looking for work, and I was pleasantly surprised to see how much he's learn from YouTube, and that he turned a small profit.

Many of the bigger lifestyle focused people run scams. Some have been arrested, assets confiscated.

There's however a boom in the younger generation in their 20s, armed with $100 starting accounts, making money.

Thats exactly what every person selling the scheme says. If you actually try and get them to show proof, they usually don't actually make that kind of money. Or if they do, they make it by selling courses or commission, not by trading.

I mean it is certainly possible to make money from forex, in the same way that you can make money playing roulette. But that's not how the people in this scheme are actually making money - if they were making money on forex, why would they bother selling courses instead of spending all day trading themselves?

Here's a video about IM academy: https://youtu.be/eKXrrsIIEhI. All these people selling the courses pretend to be independent or part of a smaller organization so you don't Google the name, but ultimately they are all in the IM academy pyramid.

> I've seen people make big bucks from Forex trading.

I've also seen people making big bucks from what they claim is Forex trading. Whether that's actually true is up for debate - I've heard somewhere that on average even people who do this for a living as a job average ~10% annual returns, so "big bucks" here from trading alone seems unlikely when even the pros can't approach that?

10 percent per what? Annually?

Yes, annually - edited!

Thanks. Calculated in a stable currency (sort of USD) or does actually inflation dig into it?

> ~10% annual returns

That kinda checks out to me given the overall markets tend to return ~7% to 8%

Not with forex though, isn't forex pretty much 0 sum? So on average you should make no money

Ah my bad, I don't have much experience with forex

The difference is you believe what the guy in the article says while other do not.

That’s just looking at one tail of the gain distribution curve. You just need a few big success to spread the idea that people will be rich.

>Classic pyramid scheme. It works great in poor countries since people aren't as educated

Bingo! Schemes like these were popular in Eastern Europe after the fall of the iron curtain where some people got rich and a lot were left holding the bags since most had no financial education but were poor and desperate enough to fall for get rich quick schemes as there were no laws against this sort of stuff during the transition phase to capitalism.

I constantly get ads for these in vk. There's usually a guy wearing good suit, driving lambo in a company of stunning woman. "Wanna be in his place? Sign up for our exclusive course!"

Bruh, I get the exact same type of ads in Austria on instagram from some German dude.

These fake millionaire lifestyle gurus are everywhere.

Im in Germany, since the beginning of the pandemic more than half of my YouTube advertising is some sort of MLM or other very obvious scams! Everybody seems to be selling their fantastic courses and really want to share it with the rest of the world :)

> these were popular in Eastern Europe

Aside from Albania & the 1997 unrest, where else had these issues?

Romania

Yes, the most infamous Romanian case was "Caritas" in 1992–94.[0]

[0] https://en.wikipedia.org/wiki/Caritas_(Ponzi_scheme)

Former Yugoslavia. Heck, we even had banks that offered monthly 10-15% interest on savings accounts in Deutsche Marks. Needless to say, the whole scheme collapsed after a year or so.

I wonder how Bitcoin compares to this.

Exactly the same, with even less regulation? I read today that 20% of Bitcoin futures on binance are trading at 125x leverage!!! 60% at JUST 20x leverage. A huge part of the crypto world is just completely insane. They are normalizing a level of risk literally absurd.

https://twitter.com/CryptoCobain/status/1369225313922736129?...

Bitcoin mining has also become the lifeline for the likes of Iran and Venezuela, where the power is priced cheaper in local money.

Iran has been moving towards an official legal framework for Bitcoin.

speculative bubble =/= pyramid/ponzi scheme

https://news.ycombinator.com/item?id=26203396

MLM in America target predominantly stay at home moms.

Can you explain how you view every trading or market isn't a "Pyramid Scheme"? I don't disagree, but if you buy Apple stock at price X, you hope that someone else buys it at price x + y.

So in a sense, every investment you do is with the hope that someone else is buying it for a higher price in the future.

It's not the trading that's a pyramid scheme, it's the multi-level selling of "training" on how to trade.

The stuff that makes this a pyramid scheme is all the stuff around the trading.

> influencers usually make their money by selling private courses

> are paid by brokers each time one of their followers opens an account

It doesn't matter what the product is when operating a pyramid scheme, so long as the rubes buy the idea that it could make money. The scam has nothing to do with Forex trading.

Apple makes money. It will pay you off the value of the investment in about 20-30 years depending on how well the business goes. If you get that money as dividend, stock buyback or someone else wanting the stock doesn't really matter much besides liquidity which is always a nice to have.

If you are stuck holding Apple stock, specifically, Apple is profitable and has a history of actually paying dividends.

Pure price speculation on stocks, without at least some cursory net present value calculation on the expected lifetime dividend income and a rough estimation of the liquidation value of the company's assets kind of is a Pyramid Scheme in that the only value of the asset is a hypothetical Greater Fool

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