Finding Value in the Little Things: Micro-Cap Stocks

Many investors are starting to put their money into micro-cap stocks. Here are the basics of micro cap stocks.

Micro-Cap Stocks

A micro-cap stock is a company that has a market capitalization of $50 million to $300 million. These are some of the smaller companies on the market, but they are not necessarily the smallest. Nano-cap stocks are issued by smaller companies.

Where They Are Traded

Micro-cap stocks are typically not traded on the major stock exchanges like the NASDAQ or the New York Stock Exchange. Instead, they are traded in the over-the-counter market. This makes trading these stocks slightly different from trading the stocks of larger companies. You can access the over-the-counter market through the over-the-counter bulletin board or through pink sheets. Your stockbroker should be able to help you with trading these stocks.

Lack of Information

One of the common characteristics of this type of stock is that there is a lack of information for investors. When you trade larger stocks, you are used to having a plethora of information to evaluate. This is because larger companies are required to file income reports with the SEC. When you are dealing with micro-cap companies, this is not a requirement. Therefore, you may have difficulty finding relevant information about these types of companies. Because of this, you will often find rumors being spread about these companies. Individuals often attempt to use this tactic to influence the price of stock in the company.

Listing Requirements

With this type of stock, there are no specific requirements when it comes to listing your company. By comparison, companies have to have a certain total of net assets and amount of income in order to qualify for listing on the NASDAQ or the New York Stock Exchange. This means that you could get a number of different types of companies that are available to purchase on the over-the-counter exchange.

Growth Potential

One of the biggest benefits of investing in this type of stock is the unlimited growth potential. If you can successfully choose a company that is poised for growth, you could bring in a substantial return on your investment. Since you can usually purchase shares of these types of companies relatively inexpensively, you have a lot of potential with this type of investment. Many investors like to try to pick these smaller companies simply for the massive growth potential that they provide.

Volatility

Although this type of stock does have great growth potential, you should also know that there is some volatility to worry about. Many times, the prices of these stocks will go up significantly in a short period of time. However, shortly after the price goes up, it might go back down significantly. You should look at investing in these companies as a long-term proposition.

blog comments powered by Disqus
Scottrade