Micro Cap Stocks Investing Guide

Micro cap stocks are low priced issued stocks that usually trade for under $5 per share. Micro cap stocks are also known as small caps, nano caps, and penny stocks. Micro cap Stocks are very risky stocks that have a small history of earnings and revenues. However, micro cap stocks can also be very rewarding with gains of doubling or more in a month.

A more precise definition of a micro cap stock is based on the company’s market capitalization and not from the stock value. The market capitalization of a company can be calculated by multiplying the stock value by the number of shares outstanding. This figure gives the total value of all the shares with that company at that moment.

For example, Microsoft has a market capitalization of approximately $300 billion and Dell has a market capitalization of approximately $70 billion. The classification of a micro cap company is based on the concerned investor. For companies under $2 billion in market capitalization are deemed to be small cap, but for others, small cap companies can only be below $1 billion.

Micro cap stocks have vast significance to the concern of traders. Micro cap Stocks traders can earn enormous gains in a short period of time. The unpredictability of the micro cap market is something to be concerned. However, the benefit with micro cap stocks is that investors can get large profit within just a few hours.

Micro cap Stocks seem to be attractive because of their low cost per share. Unlike the blue chip stocks, micro cap stocks need a smaller amount of investment and can make a lot more. For example, obtaining 10,000 shares of a penny stock only require $1000. However, the same quantity of shares in a blue chip can cost as much as $10,000,000. The major advantages with micro cap stocks are that obtaining a big position in a company for smallest amount of money can be doable. For example, a $4,000 investment in a blue chip stock can only provide the investor with a small share in the overall company. The equal amount invested in micro cap stocks can offer you a good percent stake in the company. In addition if that stock increases and develops successfully over the year, you can see your shares and profits multiply.

There are a few disadvantages about micro cap stocks. The main disadvantage is the unpredictability of the stock. Volatility can be either bad for the investor or good for the investor. Investors can get massive losses if the market turns in an unwanted direction. Due to the high risk factor concerned, many investors choose to stay away from investing in penny stocks.

Unlike stocks traded on the major stock exchanges such as the NYSE or NASDAQ, micro cap stocks don’t have to disclose financial requirements. As a result, the information they provide are less reliable, and it is more difficult to do research on them.