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How do I Choose the Best High-Risk Stocks?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 August 2016
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Investing in high-risk stocks has the potential to create extraordinary profits. Unfortunately, it has much greater potential to lose money, hence the high degree of risk. Choosing the best high-risk stocks is a little like betting on the long shot in a horse race: it's a good idea to cover the bet with safer plays.

Penny stocks are a popular type of high-risk stock investment because they cost little to buy. Penny stocks are usually available in companies with a low investment grade, new companies, and those that have fallen from prestige. They tend to cost less that $5 US Dollars (USD) per share, which usually means that any loss of value is unlikely to be devastating. Since there is always the outside chance that penny stocks will take off and suddenly inflate in value, these high-risk investments may be a good way to engage in a small amount of high-risk trading.

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Shares in a new company are often considered high-risk stocks until the business has developed a history of positive performance. One strategy for high-risk investing involves looking at new companies and trying to determine which are in market segments that are poised to take off in the new future. Companies that offer products and services that are innovative or in an under-saturated market may be good high-risk investments. Since many public companies exist privately for a while before issuing stock, it can also help to look at the performance record of the business before it went public.

Some of the research needed to choose the best high-risk stocks involves eliminating bad risks. Buying high-risk shares from companies that have a recent history of decline, are in an eroding segment of the market, or have their value inflated by a bubble can be a dangerous investment. While all high-risk stocks naturally have a greater chance of losing value than gaining it, researching the industry, market and recent history of each company can help eliminate companies with a much higher probability of losing value.

In some cases, a high-risk investment may be categorized as such because of the volatility of its market. While these can be poor long-term investments, if a company shows a pattern of gaining and losing value repeatedly over a few days or hours, it may present a good opportunity to make a profit in a short time. Timing is key to this type of investment; an investor must be able to measure the adrenaline of the market to know when to buy and when to sell. Short-term high-risk stocks are not for the faint of heart or the extremely busy; an investor may have to literally sit at his or her computer monitoring the moment to moment shifts in order to make the best trade.

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