In every market in the financial industry, you’ll find a plethora of professional traders, and every one of them looking to make the best possible return on investment (ROI).
In order to achieve this, every trader will devise appropriate strategies and trading plans – using an expert trading platform such as Plus500 stock trading for example.
There’s such a wide variety of trading styles to adopt, with so many different types of stocks available for potential investment, which can produce optimal profit and overall success.
That being said, this article will focus on one particular type of stock – growth stocks. Read on, to find out what growth stocks are, and why you should choose them as a profitable source of investment.
What are growth stocks?
Growth stocks are similar to any other stocks, except these are specific stocks in a company which are predicted to grow at a rapid rate, significantly above what’s currently expected for the average growth rate in the market.
When trading growth stocks, they commonly do not pay any dividends, as they are often in an emerging sector, and prefer to take any profits gained and reinvest them back into the company. This will in turn, fuel the continued growth of the company, and can provide even further profits to benefit from.
Professionals usually trade in growth stocks with the aim of amounting profits through capital gains. Since dividends are not present, the main way of securing a profit is through investing in growth stocks, then selling the shares in the future at a significantly higher price.
Why should you invest in growth stocks?
- Substantial profit through capital gains
The main reasons why you should invest in growth stocks, is due to the substantial profits that you stand to win, through the capital gains produced by your trades.
The key identifier with growth stocks, is that they are growing at a massively higher rate than the average rate in the market. Therefore, in much shorter periods of time, the price of an asset can sky rocket, and be at a higher sell price – and maybe even still rise.
If you are strategic enough to trade this stock when you identify its potential for growth, then you can ride the stock value price as it soars, and then whenever you deem it suitable, sell at the new significantly higher price.
If successful, this will result in substantial profit, and allow you to reap the rewards of an accurately executed trade.
- Short and long-term return on investment
Another reason why you should invest in growth stocks, is the opportunity to receive ROI in the short-term and long-term.
Growth stocks are often associated with short-term trading, since the stocks are rising rapidly to a certain point (which is unknown to traders), and it seems as though they will inevitably start to slow and fall again. Therefore, you invest, wait for the rapid rise to reach a satisfying point, and sell before it declines again.
However, on top of this, growth stocks can also provide long-term ROI.
In many cases, the rapid growth of a stock is reflective of the company doing something right, and performing well. Sometimes, this performance becomes a key component of the company, and the growth can remain intact for years. In this case, you can receive a much larger profit after a prolonged period of growth, by using position trading, for example.
Therefore, with opportunities to profit in the short and long-term, growth stocks are a great option for all traders.
- Overcome the current market trends
Growth stocks are also capable of transcending the established trends of the market, and this is a great way for traders to make profits.
The stock market can often be showing an overall trend, or maybe even a particular selection of stocks. However, the beauty of growth stocks, is that they’re showing abnormal growth, and can often defy these trends.
For example, outside factors may be causing an overall slow rise, or even decline, of the majority of stocks on the market. However, the existence of a growth stock means that a particular asset is rising at an exponentially higher rate, and overcoming the otherwise slow or declining trend.
Therefore, growth stocks can allow traders the opportunity to invest in rapidly rising stocks, even when the rest of the market is appearing worse-off.
Despite there being countless more, these few advantages of investing in growth stocks, may have inspired you to add some of these stock types to your portfolio, for the chance of some successful trade profits.