Ponzi Scheme
A fraudulent scheme that pays earlier investors with money from newer investors.
Quick answer
A Ponzi scheme pays early investors from new investors money, not real profits.
Definition
A Ponzi scheme pays returns to early investors using money from new investors rather than real profits. It collapses when new money stops coming in. Any promise of guaranteed high returns should be treated as a warning sign, because regulated trading does not work that way.
How It Works
- It collapses when new money dries up
- Guaranteed high returns are a warning sign
- Regulated trading carries real risk
Trading Tips
1
Treat guaranteed returns as a red flag
2
Check a firm licence before sending money
3
Expect legitimate brokers to warn about risk, not hide it
Related Terms
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