1. The Biotech Bust: Remember Zyla Pharmaceuticals? In 2015, its stock price skyrocketed when the company promised to have discovered cancer treatment drugs.

A unique proposition with a noble cause, investors jumped in. However, the treatment failed clinical trials, and the stock plunged into oblivion.

Zyla’s low trading volume meant selling shares became a slow process, leaving many investors holding onto depreciating assets.

2. The Penny Stock Pitfall: Microcap companies often trade for mere pennies per share, attracting bargain hunters.

But be warned! Their low share price often indicates low liquidity. Take, for example, Enron’s pre-scandal days.

While its stock price was low, its daily volume was insignificant.

When the scandal hit, investors were left scrambling to sell practically worthless shares and the market had no buyers for it.

3. The SPAC Mirage: Special Purpose Acquisition Companies (SPACs) raise money through IPOs to later acquire another company.

The initial excitement can lead to significant price jumps. However, if the target acquisition falls through or disappoints, investors might find themselves holding onto a SPAC with limited prospects and low trading volume, making an exit challenging.

4. The Regional Regret: Smaller, regional companies can offer unique investment opportunities.

However, their limited geographic reach often translates to lower liquidity. Investors who bought heavily into a local brewery chain, for instance, might face difficulties finding buyers outside their region, especially if the company’s performance falters.

5. The Pump-and-Dump fiasco: Be wary of sudden surges in stock prices fueled by online hype or social media campaigns.

These “pump-and-dump” schemes often target illiquid stocks, creating an artificial buying frenzy.

Once the hype fades, the price falls drastically, leaving unsuspecting investors trapped with illiquid holdings.