Take a Flier Definition

What Does "Take a Flier" Mean?

The term "take a flier" is a colloquial term that refers to the risk that an investor takes when they knowingly make an investment that may result in a significant loss. Put simply, it is financial slang that denotes the actions that an individual who knowingly engages in risky investment activity. Investors who take a flier are generally speculators who make moves on high-risk securities. There are no guarantees that these risks pay off. Investors may realize large profits if they do pay off but the capacity for loss is just as sizeable when things move in the opposite direction.

Key Takeaways

  • Take a flier is a slang term that refers to the actions that an investor knowingly takes in hopes of an even bigger return from a high-risk investor.
  • It often implies the investor has no intention of getting any money back if the investment doesn't return an unusually large payout.
  • The term taking a flier may also be used to refer to the event of taking a large loss.
  • Such strategies are best suited for experienced investors—not novices.
  • Common circumstances for using this phrase may include IPO investments, leveraged trades, or low-probability bets on an investment that could turn around unexpectedly.

Understanding Take a Flier

The financial world is full of jargon and slang terms that are used by professionals and investors. Some of these terms include:

  • Sushi bond, which refers to a Japanese issuer's bond outside the country in a currency other than the yen
  • Ankle biters or small-cap stocks with market capitalizations of less than $500 million
  • Killer bee, which is a firm that helps a target company fight a takeover

Take a flier is another slang term used in the investment world. It describes the actions of an investor who buys and sells highly speculative investments and is fully aware they may lose all of their money. This phrase can also be used to refer to the event of taking a large loss. For example, saying "the firm took a flier on that investment" usually means that the company took an inordinate amount of risk or did not do its due diligence.

This phrase is used because when an investor takes a flier, the feeling of risk in the investment is mitigated by the potential for a significantly higher return if and when the investment pays out. An investor may also take a flier on an investment they believe in but that may not result in a large return. For instance, an investor who backs an emerging industry may invest on the basis of a personal obligation. This sometimes comes with the hope of profiting or breaking even at a far future date.

There can be any number of circumstances that cause a particular investment to present an increased risk, and in most cases, such strategies are only recommended for experienced investors who have carefully calculated the potential outcomes. While all types of investments include some risk, those who take a flier on an investment are typically prepared to see no return on that investment, and perhaps take a total loss.

Many investors who take a flier are experienced investors. But in some cases, individuals who buy and sell high-risk assets do so for the very first time.

Special Considerations

There are four common situations in which an investor may be tempted to take a flier. They include initial public offerings (IPOs), futures trading, options trading, and penny stocks. We've outlined how these work below.

Initial Public Offerings (IPOs)

IPOs offer investors the opportunity to invest in a company that enters the public trading market for the first time. These offerings function as a method for a growing company (usually a startup) to attract a large amount of capital in a short period of time and are frequently met with excitement both in the market and in the press. But risks abound in IPO investment.

A company emerging in the stock market always carries a degree of uncertainty regarding its long-term viability in the marketplace. High publicity can skew the valuation of a company, sometimes leading to an overvaluation of that company and a less advantageous return on investment.

Alternatively, an IPO without a great deal of public attention may result in stock that is undervalued as it emerges on the market, and thus a greater return for investors. Analysts have shown that 25% of IPOs trade below their initial price.

Futures Trading

Futures trading involves the investor agreeing to purchase an asset at a specified price at a future date. Frequently used in commodities trading, this type of investment initially emerged as a way for farmers to hedge against the value of crops between planting and harvest. Futures trading obligates the buyer to purchase the asset at the specified time at the predetermined price.

Options Trading

Trading these investments offers the buyer a contract for the right, but not the obligation, to purchase a security at a specific price at a future date. Both futures and options are risky because they each specify a time requirement on a trade, and if the actual price of the security at the time set by the buyer is disadvantageous, the buyer will take a loss, particularly in volatile markets.

Penny Stocks

Penny stocks are company shares that trade for less than $5 per share. These stocks normally trade on the over-the-counter (OTC) market or on the pink sheets. Trading these types of stocks is done electronically and can result in significant profits. Stock performance in this category is highly unpredictable, and this area of the market is at the greatest risk of fraud.

Some other common high-risk strategies include venture capital investments, emerging and frontier markets, leveraged exchange-traded funds (ETFs), limited partnerships, currency trading, junk bonds, and hedge funds

Example of Take a Flier

Here's a hypothetical example to show what it means to take a flier.

Let's say you get a tip from a colleague that there's a penny stock with the potential for good returns. You do a little research and find that the company is working on a new development that could change the industry, which promises to help lead the company into becoming the next Meta (META).

Keep in mind that you know the risks that come with investing in penny stocks, namely a lack of liquidity, very little financial history, and a lack of information. Purchasing shares in this company doesn't guarantee you a positive outcome. In fact, you stand the chance of losing your entire investment. Despite knowing all this, you still invest in the company. By doing this, you're taking a flier.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

Article Sources
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  1. Merriam-Webster. "Take a Flier."

  2. Marker via Medium. "Why the Day One IPO ‘Pop’ Is Overhyped."

  3. CME Group: Education. "Learn About Contract Specifications."

  4. U.S. Securities and Exchange Commission. "Investor Bulletin: An Introduction to Options."

  5. Code of Federal Regulations. "Title 17, § 240.3a51-1 Definition of “Penny Stock.”

  6. U.S. Securities and Exchange Commission. "Important Information on Penny Stocks."

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