What are speculative stocks?

Speculative stocks are extremely risky in that the earning so far are uncertain, with unproven history, and are highly unstable.

These stocks are risky and your overall investment in speculative stocks should never account for more than 5% of your investment portfolio. These options are commodities and penny stocks.

Commodities- a product that will exchange on a commodity exchange, including goods, foreign currency, financial instruments and indexes.

Penny Stocks- a stock that typically sells for less than $1 per share and is issued by companies with a short or erratic history of revenues and earnings. All penny stocks are traded over-the counter.

The basic company you will see with penny stock is a very small company with highly illiquid and speculative shares. The company will also generally be subject to limited listing requirements along with less filing and regulatory standards.

There are other speculative stocks that are inexpensive stock, also known as micro-cap stock. This term usually refers to stocks costing less than $1 per share, but it may also refer to stocks under $5.00 also.

Speculative stocks are subject to dramatic price changes in addition to the fact that they pay little to know dividends.

The speculative stock market is volatile and thinly traded, however, it can be a source of great profits.

These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure.

The main thing you have to know about speculative stocks is that they are much riskier than regular stocks. For instance, in the world of stocks, the equivalent comparison is penny stocks vs. blue chip.

Many of the companies considered being micro-cap stocks are either newly formed or approaching bankruptcy. These companies will generally have a poor record of accomplishment or none at all. As you can imagine, the lack of histories of companies only magnifies the difficulty in picking the right stock.

Many aggressive growth mutual funds have portfolios consisting of many cheap stocks, with the belief that cheap stocks have greater growth potential

When stocks do not have much liquidity, two problems can occur.

First: there is the possibility that the stock you purchased cannot be sold. If there is a low level of liquidity, it may be hard to find a buyer for a particular stock, and you may be required to lower your price until it is considered attractive by another buyer.

Second: low liquidity levels provide opportunities for some traders to manipulate stock prices, which are executed in many different ways. The easiest is to buy large amounts of stock, exaggerate it the stock and then sell it after other investors find it attractive (also known as pump and dump).

The biggest lie when looking into speculative stocks is that there are many of today's stocks that there is a positive linking between the numbers of stocks a person owns and the return from them.

Ok, so there are a few speculative stocks that are good quality, however many companies are working hard to make their way up the ladder of stocks more reputable. In addition, many companies are not trading for pennies. You need to look at the risk and evaluate the benefit.

If you are lured into the risk factor and see the possible high yield return, then invest. However keep this to a minimum and then invest the rest of your future in a more stable long-term investment.