We believe that an investor should have a decent amount of curiosity, be open-minded and learn new things quickly as the financial tools landscape keeps changing. But in this article we want to warn about investment instruments which most likely lead to losing money rather than building wealth.
Many tempting investment offers are in fact a dangerous game in which you can lose everything. Here are the five worst things you can do with your money.
1. Binary options: the theory of probability that will bankrupt you
At first glance, it seems that binary options are all about the stock market and investments. In fact, these are bets where the "investor" can only count on luck.
Binary options work like this: traders bet on the rise or fall of the price of a certain asset (dollar, euro, cryptocurrencies, precious metals) in the short term - usually transactions last from a minute to a day. If you've guessed correctly, the bet is returned with a premium. If not, you lose everything. It is reminiscent of bookmakers.
Some volatile and poorly logic securities traders compare to casinos. And binary options are literally them - this is a game with negative mathematical expectation: if you lose, you always lose more than you earn with a successful bet. According to the theory of probability, if you make a lot of bets, then 99.9% of the trader will be left with nothing. The casino almost always wins (unless you build a strategy against it) - even a super-lucky gambler will certainly drain the deposit at some point.
2. FOREX: the most complex and fraudulent market
FOREX is primarily the international currency market. Banks of different countries and large corporations make purchases and sales on it. There are also speculators on it - investment funds or large traders seeking to make money on changes in exchange rates.
For an ordinary person, FOREX is more of a gambling game for big money. It is not difficult to play it: you need to trade currency with the expectation of the rise or fall of a particular pair. But winning is extremely difficult: exchange rates are unpredictable, and due to usually minor fluctuations, you have to work with a lot of leverage, which dramatically increases the risk. Yes, it is really possible to make money on FOREX, however, only a few professionals manage to do it.
But the main danger lies elsewhere - many FOREX brokers are outright swindlers. They usually operate in poorly regulated jurisdictions. They convince clients of the ease of making money on FOREX, give amateurish "knowledge" and encourage them to use leverage. They can also display unfavorable quotes and simply exchange money between their clients, in fact, functioning as binary options. It will not work to sue them - usually, such companies are registered in offshores and do not obey your local laws.
You can try luck and become one of those professionals making money on FOREX but there definitely other less stressful ways of making money on financial markets.
3. HYIP projects: financial pyramids of the XXI century
HYIP translates as a "high yield investment program". Their creators usually offer to invest in super-promising things: a mega-successful investment fund, unique innovative technologies, goods, or services that are sure to take over the world if they attract a little investment.
In fact, investments in HYIP projects are equivalent to investments in financial pyramids. In theory, you can make a profit in them, but only if you are among the first investors, and after you, the pyramid continues to recruit new investors who will provide you with payments. However, the majority are unlucky - having collected the required amount, the organizers sooner or later curtail their activities, and the investors lose their investments. ... An example of a classic HYIP pyramid is Zeek Rewards, which attracted about $600 million from 1 million people.
It is not so difficult to recognize HYIP pyramids: they usually emphasize high and fast profitability (up to 5% per day!), As well as a guarantee of return and exclusivity of investments. At the same time, it is impossible to find non-anonymous requisites or contact details of the organizers. They do not have the necessary licenses (or they are fake), and the scheme for using investments is either opaque or complicated as much as possible.
4. ICO: digital fraud, from which no one can protect you
ICO (Initial Coin Offering) is an initial placement of tokens that resemble digital bonds (or stocks): a company borrows money from investors, in return transferring tokens to a cryptocurrency wallet. It would seem that everything is clear and transparent - but in reality today there is virtually no state regulation of the ICO mechanism, which is typical for IPOs and similar investment activities.
Because of this, the ICO market has been flooded with scammers and fake companies that have no business plan and no real product. Having collected money from gullible investors who believe in another blockchain project, they disappear and leave the latter with huge losses. Investors' legislation does not protect in any way.
Companies entering the ICO usually tell the good and keep silent about the bad. It is difficult or impossible to find out whether there is something real behind the loud declarations. Even if the company is a real one with an existing product, it may take years to reach profitability and increase the price of tokens. 80% of ICOs in 2017 turned out to be fraudulent, and in general, according to statistics, the absolute majority of initial token offerings are unprofitable - single projects manage to “take off”.
Having said that if you do the home works to study the company making ICO and the people behind it, it may be a good investment - there is still a risk that you will lose your money but at the same time, you can return in a manifold. An example of such a projects is Polkadot.
5. Auto follow-up: safe with legal services, risky with unknown persons
Copying other people's strategies, and even in automatic mode, looks like an attractive solution - especially for inexperienced investors. It works like this: self-traders connect to the auto-follow service. Service users evaluate the dynamics of their account and can become subscribers of the manager - then his transactions will be repeated on their accounts for a certain percentage.
Now on the market, there are auto-consulting and auto-follow-up services that can help those who are ready to rely on others for investments - for example eToro, Darwinex, etc. They are legal and officially accredited - this is a normal tool, which contains only market risks: even a successful manager can miscalculate and cause losses to subscribers. And the regulator monitors the quality of services.
However, along with them, there are a lot of uncertified auto-follow programs that offer to copy super-successful strategies with thousands of percent of the profit. This is how naive investors are attracted by fraudsters - their programs can even "trade" non-existent assets.
Entrusting money to them is like investing in complete obscurity: you do not know who and how will dispose of them and whether anything will be returned to you at all.
If you want auto-follow (fund-style) investing consider an instrument called ETF which represents a portfolio of assets that is traded on an exchange and so much better regulated.
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