Most volatile stocks are companies that have had large price swings, leading to a significant gap between these companies' intraday highs and intraday lows. Stocks may see unusually-high price volatility when important new information affecting the stock's valuation is made known to the public, but the market is uncertain how that news will affect the stock's long-term prospects. Price volatility is calculated by dividing the difference between the intraday high and intraday low by a stock's previous closing price. Common questions about volatile stocks.
The stock market allows investors to buy and sell ownership in publicly traded companies. This ownership is represented by shares of a company’s stock. The term “stock market” refers to the many different markets in the U.S. and around the world that allow the trading of stocks.
Investors have many different strategies that can be followed. Some investors prefer a dividend investing strategy, choosing companies that pay out some of the profit to investors as an added incentive to invest. Other investors may choose to buy low and sell high through growth stocks in a bull market. For more information, check out these best growth stocks.
What is Stock Volatility?
Stock volatility refers to the changes in the value of that stock. The more volatile a stock, the more its price can fluctuate both up and down. The price reflects what investors are willing to pay for a given share of a company’s stock. Investors have many methods of determining the value of a share and they compare this to the expected value the price per share will reach. Buying and holding a low-priced stock that is expected to increase in value comes with risk. In a bear market, stock prices can fall quickly as investors abandon ship. There is a chance that some stocks will be extremely volatile, and this rapid movement can result in huge losses after the market closes. The more often that a share price fluctuates, the more risk is implied. Investors may be able to carefully trade in volatile markets to make a profit in the short-term, but the odds may be against long-term success.
Why Volatility is Important?
Volatility in a stock price can lead to wild swings both up and down. The increased risk of losing money also carries with it the chance for a substantial profit. Some investors have made a lot of money investing in volatile stocks. For example, one strategy might involve buying high quantities of low-priced stocks with the hopes that a small increase in value will result in large overall gains. An important concept to keep in mind is that when selling shares, the transaction only finalizes when a buyer purchases them. Basically, you are not guaranteed the price you request when selling the shares. If the price of the share has dropped before the sale processes, you could end up receiving less. The more volatile a stock is, the more risk and reward can be expected.
Volatility is important because it gives investors a range of investment options that allows one to tailor an investing strategy to individual needs. Investors with a long-term view who can afford to risk more can diversify more heavily into some volatile stocks. These investors typically include low-risk stocks with a guaranteed low rate of return to round out their investment portfolio.
What Affects Stock Volatility?
Stock value is a complex subject. Shares of stock are shares of ownership in a company and reflect investor faith in the ability of a company to grow or pay dividends. The price reflects what investors will pay for a share in secondary markets. Multiplying the number of shares the company has released by the price results in the market capitalization, which may sometimes be used to indicate the value of a company.
There are many other ways to determine a company’s value, such as by examining profits or assets. You could also analyze historical price trends to predict future trends. Some investors use mathematical tools and methods to determine value through other means. In addition to individual investors, there are also portfolio managers, robo-traders, and larger investment organizations making large purchases based on different investing models.
Local and market conditions can also affect a business, which will impact different investing models. Even social and political factors can impact investors around the world. The president can post a comment on social media and prices will fluctuate on the stock market as investors react. These many different factors that play a role in stock prices are what can cause stock volatility. Keep in mind that it may not be easy to get rid of a stock that drops in price drastically. This can make volatile stocks less liquid or less easy to sell. Even as a short-term strategy, it is possible to lose a lot of money quickly.
How to Invest in Volatile Stocks?
There are many ways to trade in volatile stocks. The first step is to determine the acceptable level of risk for a stock to have and then deciding which investment strategy is best for your situation. Some day traders can make many transactions per hour buying and selling shares of the most active stocks. You can use market order to help control the investing process by setting limits on when to buy and sell. However, the possibility of losing more than your sale price is possible in some situations.
Automatic investing or using robo-investors is a growing trend where computer programs use complex algorithms to make buying and selling decisions. You can sign up with free brokerage accounts with low fees and make your own investing decisions. It may be a good idea to seek investment advice from an investment advisor, portfolio manager, financial analyst, or broker.
Investors can set limit orders to buy shares at a specified price. A stop limit is used to sell shares if the price drops below a given threshold, while a sell limit is used to sell a share if it reaches a specified price gain. These tools can help investors with volatile stocks to manage negative swings. In addition to investing in the potential growth of a company, investors can also bet against a company and hope that the share price will drop. This can be used to cover both sides of a price swing to minimize losses but at a reduced rate of return.
How to Find Volatile Stocks?
You can discover volatile stocks by using trusted websites like MarketBeat for up-to-date and useful investor information. One such tool offered by MarketBeat is a stock screener for certain subscribers. A stock screener is a tool to help investors sort stocks by certain criteria. This can help investors pinpoint those shares which are the desired level of volatility. The specific criteria will depend on your investment strategy. You may want to examine stocks with rapid changes in price over a given period. Or you can look for high volumes of trade at low prices and seek out the biggest percentage gainers.
Investors can also invest in volatile stocks through exchanges around the world. One way to find volatile stocks is to calculate the beta, or risk of those stocks, using mathematical analysis. This takes into account past information for the company stock and compares it to benchmarks of the industry or the market as a whole. Websites that offer stock investment advice may also list volatile shares for trade. Price volatility and the movement of price position to market changes are compared to determine the relative risk of any given stock. The most volatile stocks have a higher beta. Companies with a high beta, over a value of 1, generally have a higher implied volatility, while those under 1 do not.
A given value for a company can differ depending on the valuation model used. Some investors look to earnings per share and the financial documents released each earning season to analyze each asset class for investment opportunities. Changes in company profits during any given earning season can greatly impact the value of share prices as investors buy and sell in response.
The downside to using only one strategy to determine value is that it may miss out on red flags that other methods might have picked up on. When looking for the most volatile stocks on the stock exchange, consider analyzing the available information through a variety of tools like those offered on MarketBeat.
Should I Invest in Volatile Stocks?
Before you decide to invest in volatile stocks, you should first consider several factors. It’s important to determine your available investing funds, the length of time able to invest, retirement and estate plans, and overall investing strategy. A common strategy is to minimize your overall risk by diversifying your investments. These risks can include changes to market forces, other investors losing faith and selling, corporations simply going out of business, and more. One investing option is to bet against a stock, such as NASDAQ biggest losers, so you benefit from a decrease in price.
Some investors choose to invest in companies that issue dividends regularly. With enough dividend shares, investors can often produce a sizeable income each month. Other investors go for capital gains when a share price increases greatly. Both methods have tax implications as well. Generally, the longer an investment is held (usually at least a year), the better the tax rates.
Day traders and those who invest in volatile stocks may make a high volume of trades each day to try and capture profit from price fluctuations. Swing traders may take a longer approach by investing in volatile stocks over days or weeks, or even longer. Keep in mind that volatile stocks are risky. If you want to spice up your portfolio and have time to recoup any losses, then you may want to consider short-term volatile stock trading.
Penny Stocks are Volatile – Should I Invest in Penny Stocks?
Penny stocks are often volatile and should bear careful consideration before investing. Because these are cheap stocks to buy for $5 or less, they can be purchased at higher volumes. The idea is that higher volumes allow for greater returns from modest price gains. However, volatile stocks tend to carry more risk in the long term. Those who can afford risky investments may benefit from volatile investment choices like penny stocks. Look into these stocks under $1 for a current chart of low priced stocks. Intraday volatility is used by day traders to make a high volume of transactions throughout the day. With careful investing practices and well thought out strategies, some investors can make money on penny stocks.
If you are just starting out with stock market investing, you may want to trade in other areas first. It’s a good idea to limit how much you invest in such a volatile stock type. Keep in mind that some penny stocks can be purchased through unregulated markets which add even more risk to investors.
There are many ways for investors to earn a return on their money. One method that has proven profitable in the long term is investing in the stock market. The returns depend on individual investing strategies and changes which impact these public businesses. Different trading strategies make it possible to earn a profit when the price of a stock changes value. Configuring automatic trading rules can further help minimize losses. Regardless, volatile stocks are risky for investors because their prices can change rapidly and unpredictably. However, these rapid value changes offer the potential for rapid gains as well.
Investors can find volatile stocks by searching for shares that change price rapidly throughout the day. Low-value stocks under $5 are also called penny stocks and can be volatile as well. A good way to find these kinds of stocks is to use a stock screener to sort by certain criteria. Before investing in volatile stocks, be sure it is a good idea for your entire investment portfolio. Can you absorb the loss if unpredictable changes demolish the value of those shares? Always do your research before investing in volatile stocks. MarketBeat has many tools to help you research a company’s information, past history, and performance, so you can make an informed decision.