High Risk Stocks - Should I Or Shouldn't I?

High risk stocks are called that for a reason – it is very risky investing in them! Yet there are a great number of people who invest in high risk stocks, because they are after making a profit fast – maybe over a couple of days. This is very risky indeed, as the chance of losing money on such transactions is huge, since it’s difficult to ensure returns that are profitable over a period as short as two days. Of course, if it was all doom and gloom, people wouldn’t do it; and there certainly have been times when stocks peaked over the short term. Unfortunately these occasions are rare.

Perhaps the most common high risk stock is a penny stock. These are stocks that trade for $5 a share or less. A lot of people won’t even go near investing in these, because there is a general belief that companies with shares that value below $5 carry a substantial financial risk. Penny stock prices fluctuate continuously throughout the day, and they may gain or lose within a matter of hours.

Another type of investment considered a high risk stock is shares in a new company without prior positive performance history. However, just as the risk here is great, so is the potential pay-off. One strategy used by investors is to examine new companies that offer innovative products and services or those in an under-saturated market. Sometimes these are worthy investments indeed, as these companies end up making high earnings.

Of course, to select the right high risk stock, you need to do some research. The most important thing you should consider is eliminating bad risks. Most of these are obvious, like buying shares from high risk companies that show a history of decline or are in an over-saturated market. The thing to remember is that all high-risk stocks usually are at a greater chance of losing money rather than making a profit. So, your best bet is to thoroughly research the market, the industry, and the company history in order to determine the most prudent high risk investment.

Another piece of advice when selecting a high risk stock is that you should look at general trends of such stocks in the industry. That way you will gain a general understanding of the way prices fluctuate. You must also decide how much money you would be OK with losing if you invested in high risk stocks.

The bottom line is that high risk stocks may be a viable option if you’re out to make a profit quickly, but sometimes the risks are too great and you end up with a loss instead. So, you should weigh all the pros and cons before you invest your money in such stocks and be 100 percent sure it’s worth the risk.

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