Quote:
Originally Posted by 1ForAll
$4k is a small risk with hopes of making a large return. I just did something similar. Make sure you put a stop at a certain price, that way you don't lose $.
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Your statement is very much like the misconception that buying a penny stock is cheaper and has less of a downside than buying a higher priced stock. You're still going to buy the same amount, it just doesn't feel like it is as much because you are buying a $0.45/share stock as opposed to a $45/share stock.
I'm picking on your choice of words, "small risk". "Large return" is relative to the amount of money that you risk. If you risk 8k and make 25% on your money, you would have made twice as much as if you had risked 4k and made 25% on your money.
The more you risk, the more money you have the potential to make, but it is proportionately equal to the amount of your risk.
You need to be thinking about risk as far as how much you are putting in versus how much you can expect in return, not how damaging a loss could be to your portfolio. Never make an investment if you cannot afford to be wrong. The guy that was on here a while back saying that he was down 80% of his savings in one day because he wrote an uncovered call (which has unlimited downside potential) did not heed that advice. Of course, he also didn't understand that he wasn't technically out that money yet. Point being, you need to always fully grasp what you are getting into.