HYIP

HYIP stands for High Yield Investment Program. HYIPs are investment programs normally offered via the Internet. HYIPs are popular because they typically accept investments of $100 or less while offering high returns. The introduction of e-currencies such as e-gold and StormPay (although almost all HYIPs do not use StormPay as of February 2006, see StormPay article for why) has made it easy for HYIPs to operate across international boundaries, and to accept large numbers of small investments.

Many HYIPs have turned out to be scams. Scam HYIPs use the ponzi scheme approach, in which new investors provide the cash to pay a profit existing investors, which they could then withdraw leaving nothing to pay the new investor. This approach allows the scam to continue as long as new investors are found and/or old investors leave their money in the scheme, known as compounding (because even higher profits are promised).

The turnover in HYIPs is high. For example, one website that links potential investors to active HYIPs has a "blacklist" of more than 500 HYIPs that have gone out of business.

HYIPs are frequently advertised in spam emails, forums or mailing lists, since people are typically given a commission (for example, 9% of invested funds) when they provide a referral of a new customer.

HYIPs typically are not based in the United States, Europe, or Japan - countries that have strong laws against unregistered investment programs. HYIPs disclose little or no detail about the principals, management, location, or other aspects of whom is getting the money to be invested, and relatively little information (other than asserting that they do various types of trading on various stock and other exchanges) on how their investment programs actually work.

HYIPs typically claim to offer interest rates of 1% or more per day on invested funds; many claim to offer much higher daily rates reaching 250% a day, and these are definitely ponzi schemes. Sometimes even higher profits such as 700% daily are promised, but these are fairly obvious scams where money deposited will be "stolen" by the operator.

Such high interest rates raise the question: why would any business that can earn such profits, legitimately, bother to look for small investors? Such unusually high yields should tip off investors that there are serious risks involved.

As a result of online forums and monitoring sites which have made customers of HYIPs more aware of the risks they are taking, many "honest" HYIPs have sprung up in the early months of 2006. Basically, the HYIP owner calls his or her program a "ponzi game" where one should "not invest money one cannot afford to lose", and where there is "never a guarantee of earnings or refunds". They promise to pay out up to (i.e.) 95% of deposits, the rest going to hosting or other fees and the admin's profit. The first investors will make a handsome profit and are encouraged to refer other people to the program by referral commission, the fact that they have already made back their principal and are playing with profit, and that the more people who deposit money, the more money can be paid out to investors. Strategies can be developed to maximize profit using these games. Forum users can gain a reputation whereby others will trust their word that they have been able to withdraw, encouraging others to invest in the hopes that more will invest after them and that they can therefore make a profit.