The Nature Of High Yield Investment Programs (HYIPs)

"What really is an HYIP?", or "What is an HYIP really like?" How you answer that question can determine how successful you will be in the online world of high yield investing. There are at least six different answers to the question about the true nature of a high yield investment program (HYIP).

1. Investment. After all, HYIP stands for High Yield Investment Program. Yes, but an HYIP is not a real investment, because unlike a true investor, the hyiper rarely knows in what wealth-building instrument his money is.

2. Scam. This is certainly true of some HYIPs, but not all HYIPs are run by geek thieves.

3. Ponzi Scheme. It is estimated that at least 90% of HYIPs are ponzis. In an HYIP ponzi, the operator uses money from previous depositors to pay current or later depositors.

4. Gambling. This is the opinion of those who either despise HYIPs or have lost money to HYIPs. There is some truth to this, but in that sense, hyipers are as much gamblers as day traders.

5. A Money Game. An HYIP is a game in that there are certain rules of the game that can give an informed player the edge, if she will first invest the time to learn before she can earn. But once you learn the basic rules, this money game can be as much fun as it can be lucrative.

6. A Loan Program. That's what I prefer to call the 10% of HYIPs that are genuine. When you deposit funds into an HYIP, you are in effect lending money to someone, who is promising to pay you interest on your loan. You are the lender or creditor, and the operator of the HYIP is the borrower. This borrower can do whatever he wants with your money. The borrower (HYIP operator) may use your money to trade the stock market, penny stocks, the foreign exchange (forex) market, or even e-currency. The only thing that matters to you is that

(a) the borrower pays you an interest on the principal amount you loaned him

(b) he returns your principal at the end of the term of the loan.

In the lending industry, the likelihood of a borrower repaying you depends on the honesty and financial situation of the borrower. When you lend someone money, there can be no guarantee that you will get repaid. In effect, your deposit to the HYIP is not just a loan, it is an unsecured loan; the borrower puts up no collateral that you can claim and sell if he defaults on the loan. Compared to other lenders, you have another disadvantage in this credit business: there are no collections department, collections company or credit reporting agencies to report the deadbeat to! In fact, most often there is no loan contract between lender (you) and borrower (the HYIP).

Therefore, if you decide to be a hyiper, you must, like your fellow creditors (banks, etc), learn how to write off bad debts (HYIPs that don't return your funds). Otherwise, you will find yourself 'closing store' or calling lawyers. Actually going to court against HYIPs will you cost you more in time, emotional currency, and money than the HYIP game itself. Imagine a bank taking every bad borrower to court!

That's why it is absolutely crucial for you to find a way to screen each potential borrower (HYIP) as much as a bank, Master Card, Visa, or a store will screen someone who applies for a loan, credit card, or line of credit. Luckily, for those who really want to profit in this arena, there are few tools available online for screening and grading HYIPs to find those honest borrowers.

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