Investing in video games? Here are the risks.

Want to start investing in video games? Here are the risks you need to know before investing.

As the revenue generated by video games gets more zeros, more investors wonder how they can benefit from the revolution. Individual developers like Take-Two Interactive (TTWO), Activision (ATVI), and Electronic Arts (EA) have all become blue-chip stocks in the eyes of investors. While these companies have seen limited growth over the last few years, the next few are looking good. Especially considering that everyone is at home right now, video games are becoming more popular than ever before, and the stock market will reflect that looking forward.

These companies do have the same, if not more, potential than the blue-chip stocks.

However, while there are undoubtedly blue-chip companies in the video games industry, what about the not-so-known companies? The ones who are not listed on the New York Stock Exchange, or the Nasdaq? These companies do have the same, if not more, potential than the blue-chip stocks. Yet, a lack of available information makes those companies a risky investment.

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The most significant difference between the major developers and the smaller ones is the amount of available information, but where does that information come from? In the stock market (when trading companies), there are two major kinds of stocks, at least from an American investor perspective. 

The New York Stock Exchange and Nasdaq offer investors a reliable source of passive income due to the onerous regulations of publicly traded companies. Nevertheless, these companies are at the top of the food chain when it comes to raising capital, and for the little guys, there is less regulation. Therefore, there is less information available to the public.

If you want to start investing in video games, here are the kinds of stocks you need to know

An over-the-counter market (OTCMKTS), is a type of exchange that is usually for smaller stocks. Penny stocks are known as stocks that trade for under $5 a share. The low price is that the valuation of these companies is lower than the reliable stocks like ATVI and TTWO. However, this means that there is less available information when trading. 

Notable examples of this are Nintendo, Ubisoft, Razer, as well as others. While gamers know these companies as titans of the industry, to investors, they are nothing more than the servants. For investors looking to make a profit off these Over-the-counter stocks, they should research them heavily before buying in. Little regulation equals a lot of corruption, which means that you can lose money reasonably quickly. However, with these stocks, it is all about timing.

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While there may be a lack of information available to the public, this does not mean that you cannot make money off of these stocks. These companies still give out a lot of information that American companies do, so if you are looking to invest in them, make sure you read investor and analyst reports to ensure that you get in at the right time and make the most money possible.

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