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What are the Different Types of High-Risk Investments?

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  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 17 November 2016
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There are numerous investments that are considered high risk, usually meaning that there are substantial chances that money invested may be lost. One example is penny stocks, which are cheap shares sold by little-known companies. Hedge funds are high-risk investments that are generally limited to wealthy investors. Currency trading is a risky investment option commonly used by day traders.

There is always risk involved in investing in stocks. Penny stocks, however, can be even riskier. These are shares that are purchased in small, often very obscure, companies at low to very low prices. These companies usually are in a poor financial condition or are start-ups. Adding to the risks are the facts that these companies tend to have substantially more relaxed reporting standards than larger companies offering stock, which means investors have limited information about them. They also trade on a drastically smaller scale, which can make shares more difficult to get rid of.

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Hedge funds are high-risk investments. Unlike the bond or stock markets, which are subject to government regulation, a hedge fund is unregulated. The fund’s manager can therefore decide to invest individuals’ money in a wide range of questionable and untraditional ways. Due to lack of regulation, there are no reporting requirements. As a result, the basic terms are generally that a person must invest a substantial amount of money, waive access to all of it for a certain period, and allow it to be used as the fund manager sees fit.

Also among the members' high-risk investments that are largely unregulated is foreign exchange trading, commonly referred to as forex. These investments involve trading one type of currency for another in attempts to earn profits as the currencies’ values change. Although there are benefits to this type of investing, such as commission-free trading and low initial capital requirements, this type of investing usually requires special skills, training, and a significant amount of research. Even when a person possesses these things, there remains a strong possibility of losses.

Callable certificates of deposit (CDs) are often considered high-risk investments, but not in the same way as many other types of investments. The risk involved here is that a person may not get the expected return. People tend to choose these investments because they usually offer better interest rates than traditional CDs. The risk is presented in the fact that the issuer can call, or basically cancel, the CD if it suits him. If this happens, although the CD holder will receive his principal and some interest, he will lose the opportunity to receive the rates that likely attracted him and will have to search for an alternative investment option.

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