HYIPs: An Alternative to Stock Trading
By Charles Hopkins
Published 04/21/2006 | Finance
People who are successful stock traders are no strangers to the 'educated guess.' They analyze the risk associated with a company's stock and then make a decision. When they are correct in their decision they earn a gain. If they are incorrect in their decision they will lose money. Investors that continue to lose money will sell their stock to recap their investment. This ultimately means they stop investing in that company and move on to the next one that looks promising.
Believe it or not stocks are not the only way the investor can use this same strategy to make money. People who make money with HYIP (high yield investments) operate on this principle. To fully understand the comparison, it's important to first understand: 1) what an HYIP is, 2) how a legitimate HYIP works and 3) how people invest in the HYIP. Each of these are discussed in more detail below.
WHAT IS AN HYIP?
HYIPs are investment programs that offer high returns quickly. Like stock trading the more you invest the more gain you receive. Unlike stocks, however, HYIPs offer more of a return for a smaller investment. The reason why HYIPs can do this is because some of the money is funded from new membership. However, HYIPs that last DO NOT and CANNOT function on new member money alone. They must have other legitimate methods of generating revenue. If they don't the HYIP is really a Ponzi scheme and will collapse eventually. This will be discussed in more detail later in the article.
There are two types of HYIPs that are popular online: those that require a person to do nothing but simply invest and those that require a person to view advertisements. The latter has gained more popularity through a concept known as the autosurf. Autosurfs that are HYIP-based operate on the same principle as television does: offering members something 'free' for viewing advertisements. In this case the freebie is money. If the autosurf is not HYIP-based, it will offer advertising credits for its members. The more credits a member receives, the more they can advertise their sites.
HOW A LEGITIMATE HYIP WORKS
Unfortunately, because of greedy, unscrupulous people, a large percentage of HYIPs out there are scams. This is especially the case with HYIPs not based on advertising revenue though there are shady autosurfs out there too. But the reason why HYIPs not based on advertising are more dangerous is because there is even less certainty on where and how funds are being generated. At least with advertising-based HYIPs one can usually see that they are selling advertising, whether through an 'Advertise on our site' link at the bottom of their web site or even an Ebay auction. However, the HYIP that is not based on advertising usually won't make it apparent how they are generating income streams. If they don't have some fluff about making money through Forex or other legitimate trading methods, they may have the audacity to say they are a ponzi. Whether they say it or not, if they don't have other ways of making income they are nothing more than a ponzi. So this means that the ONLY way they are generating funds are through new member signups. When new members stop joining the scheme the program will collapse. This is assuming the owner is 'honest' enough to let it run that long. Sometimes individuals using the ponzi scheme will let it run for a few months, then after getting a healthy build-up of member investments, flee with the money.
Okay, so keeping all this in mind how can one distinguish the legitimate HYIP from the typical HYIP which is a scam? Below are some factors which are common to the legitimate HYIP.
1) Legitimate HYIP sites will generate revenue from a variety of sources
Member signups alone are not enough to keep a legitimate HYIP running. This is because when new members stop signing up (which is inevitable even for established membership-based businesses), the HYIP's revenue source is gone. So if an HYIP is legitimate it must sell a service or product or invest in stable trades FOR REAL.
12 Daily Pro is an example of a legitimate HYIP that generates revenue through web design and advertising services.
2) Legitimate HYIP business owners can be contacted
HYIP business owners who are serious about their business will treat it as such. This means they will establish a company just like any other entrepreneur and reveal their contact information. If an HYIP webmaster can give no verifiable information about their 'company' including telephone numbers, they are scams.
12 Daily Pro is operated by a company known as My Life Clicks, a registered business in North Carolina.
3) Legitimate HYIPs receive positive feedback
HYIP monitors are sites which evaluate HYIPs. If they pay then they receive a positive rating. If not, they receive a negative rating. Legitimate HYIPs tend to get mostly positive rating through HYIP monitors.
Legitimate HYIPs also receive positive feedback on virtually any place on the web, even those not related to investing. 12 Daily Pro, for example, has received thousands and thousands of testimonials from people on a variety of websites and message boards.
HOW PEOPLE INVEST IN HYIPS
The best way to invest in an HYIP is to start small and 'risk' only what you can afford. Risk is the operative word because there is no way to know whether or not an HYIP is legitimate until one actually starts investing. However, the risk tends to be worth it if the investor thinks the HYIP is legitimate because the return is incredibly high.
Once investors find HYIPs that are legitimate, they try to recover their initial investment as quickly as possible. After this, they invest using their profits so the risk of 'losing' is minimized. If something does happen to the HYIP it doesn't matter as much because they were playing around with just their profit anyway.
Indeed, the HYIP game may not be for every investor, but for those who want a high return quickly and are excellent at risk assessment, it is an excellent alternative. And believe it or not, there are thousands if not millions who have made money through HYIPs, despite the number of them that are shady. So while there is a risk of loss,(which is also present for conventional trading methods), investors continue utilizing HYIPs simply because the gain is so profound.