Among the most important arsenals of an investor is information. Before investing his hard-earned cash on a company, an investor must know everything relevant information about it. However, some companies only have limited information available about them, which makes them more vulnerable to schemes and fraud. One of these is microcap stock companies. If you’re planning to invest in these stocks, here are a few things you should know.
Penny stocks are companies which are are publicly traded have a value not exceeding $100 million US dollars. A majority of stocks in the US belong to this category, but they only consist of a small portion of the entire value of the stock market. Because of this, penny stocks are traded only in minimal amounts and small volumes.
Microcap stocks are typically traded in Over The Counter markets and there are two ways of doing this. First, the stocks are quoted in the OTC Bulletin Board, which is an e-quotation system that disseminates real-time sales, quotes, and volume information. The second method is through the Pink Sheets, which is essentially a list of price quotations for companies traded in the OTC market. You won’t usually find them in NASDAQ and AIMEX because these are major exchanges that require a company to have a particular net amount before being traded. You would know if a company is already established if it belongs in either of the two major exchanges.
they differ from other stocks because there isn’t enough information about them. Big investors are usually not interested about these medium scale companies due to their low value. And since investors are not interested with these, stock analysts seldom research and write about them. So, unlike the major companies, these trading capacities are very limited. Also, the limited information about the stocks make them more prone to fraud schemes.
Also, one of the reasons why these stocks are rarely seen in major stock exchanges is that because they lack the minimum requirements. They are mostly seen in the Pink Sheets and OTCBB since these stock exchanges does not require any minimum requirements, unlike in NASDAQ or AIMEX, which would require minimum amounts of net assets and minimum number of shareholders.
Aside from that, going into this level of trading can be a risky venture. The stocks have no available track record due to their being new in the stock trading business. Also, most products of these companies are still undergoing testing, and some still need to be developed.
Among all the stocks available, these could be considered among the riskiest to trade, however most lucrative if done right. Why? Their prices are unstable because they trade in small volumes and very low values. There would be a major impact on stock prices if you trade them with other kinds of stocks. You should carefully think about these risks before you decided to trade this criteria of shares.
If you’re set to go in this level of trading, you should look for more resources about the field, because this article only covered the basics. Remember, if you have enough knowledge about microcap stocks, you would be able to make good decisions and avoid being on the losing end.
The critic who wrote this article has came across an advisor named Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.