An Intro to High-Risk Investments

High-risk investments are investments in which there is a possibility that the investor can lose a substantial amount of or the entire investment. 

In simple terms, high-risk investments are investments in which you can lose a large amount of your money or possibly all your money. These kinds of investments sound dangerous, but they are very popular because of the large profits they can promise to investors. It's a multidimensional path: you could get a large percentage of profit, make just enough profit, or lose some money.

Examples of Popular High-Risk Investments

1.Crypto Assets 

Crypto assets are assets that are based on cryptography, peer-to-peer trading, a decentralized network, and the blockchain network. Crypto assets are grouped into four categories: cryptocurrencies, utility tokens, security tokens, and stablecoins (such as Tether). Of all the crypto assets, cryptocurrencies are the most popular. 

Cryptocurrencies such as Bitcoin, Ethereum, LiteCoin, Bitcoin Cash, and Tether are popular as coins for trading and investment.

On the 17th of June, 2021 a BBC article was released on its website detailing the dangers investors could face from investing in crypto assets. People are going as far as borrowing money to purchase cryptocurrency coins in the hope that they will rise shortly. 

However, the volatility of the cryptocurrency market does not guarantee that a coin will rise: dips happen and a 1000 dollar investment could become $500 or less in days. In some cases, the investment could yield amazing profits. 

2. Foreign Exchange Market (FOREX) 

The FOREX trading market is not for the faint-hearted and that is for a good reason. The 24-hour market that runs on all days of the week except weekends requires vigilance and careful trading to make a good profit. 

Forex trading involves exchanging different currencies at different prices in a decentralized market. The foreign exchange market is one of the largest markets in the world and minor changes in the prices of currencies could translate to major losses. Investors buy currencies that are likely to rise, with the hope of selling such currencies in the future.

For example, if I have American dollars I can buy British pounds with the hope that the British pound will rise against the American dollar, and I will make my profit. However, this is not always the case. Speculations about the profitability of a currency may turn out to be false and the investors may lose their money. In other scenarios, the market may be favorable and the investors will then take home a lot of profit.

3. Options

Options are contracts that you acquire to buy or sell a company's stock at a particular price within a period. You have the option of letting the contract expire by not buying or selling the stock on the date of sale, but you lose a fixed amount that you pay when you bought the option. This fixed amount is called a premium and it is your loss for letting the option expire. People invest in options because the investment offers more control than stocks. There are two types of options: calls and puts. 

A call gives you the right to buy an organization's stock at a particular price within a fixed time. The call option allows the buyer to buy the stock at a fixed price known as strike price while paying full premium. If the price of the stock increases before the option expires, you can sell at the expiration date and recover your money. If the price of the stock does not increase, you are likely to lose your premium and some of your money.

A put option gives you the right to sell an organization's stock at a particular price within a particular period. Your potential loss is dependent on the cost of the put contract. As long as the price of the stock does not go below the price that you can sell the stock for, your investment is safe. On the other hand, if your selling price which is fixed is higher than the price the stock goes for at the expiration date you could incur a huge financial loss.

High-Risk Investments: What You Should Remember

High-risk investments can come with large profits and equally large losses. 

These investments are capable of turning you into a millionaire or sending you out into the streets if you aren’t careful with your money. In my opinion, when you want to invest, gauge your risk appetite. Some people would prefer an investment that brings in small profit and guarantees the safety of their investment. 

Others prefer medium-risk investments, and then there are the brave investors: losing money may not be so traumatic for them. In investing, any investment that promises a large percentage profit comes with a high risk. High-risk investments should be done with vigilance and with spare money: do not borrow money to invest in any high-risk investment. This is because if you lose the money you could be in a lot of debt. Invest wisely and carefully: avoid reckless investments for the hope of a large profit.

Disclaimer: This article is for informational purposes only and in no way constitutes investment advice. Please be sure to do your own thorough research before making investments of any kind.