A reader emails:
Let’s say, hypothetically, that I wanted to write a scam forex trading tool. Something that offered 50-65% returns per annum.
Well trades are easy to make, like bets on black or red at roulette. I’d let the software pick at random. Hell, what do I know about future movements in the market anyhow? Some days you win, some days you lose, right?
Then I’d set the tool up so that it started out by releasing its positive trades as early as it can but make it hang on to negative trades for longer. That way the impression of a more positive return would be given. It could even make a bad day into a positive day with such an approach.
If it got some really bad trades I’d program it to keep them open indefinitely in fact – or as long as the margin call permitted.
Then the software would show good returns and for quite some time while the capital held out it would be positive more often than not
When selling it to folks, I could offer a 3 month guarantee of returns when using it from the outset with a full bank balance. While the closed positive trades show up as a return and the capital outbalances the uncommitted negative trades I’d feel comfortable giving a guarantee that it would be positive for at least 3 months.
I could even offer a Gold version that would outperform the Silver variant too, but at a higher licence fee. It would do exactly the same thing of course but it would look better simply because it was permitted to work with more capital. It would see positive returns for longer too – while the negative trades built up anyway.
Eventually the earnings, which are really just the plowed under capital – a la Ponzi, would start to dry up as the capital gets locked up by loss making trades that are “stuck” in the system. Read more »