Learning About Micro Cap Stocks and Investing in the Public Market
In investing and business, micro cap stock refers to a share of stock in any company that has a price per share of less than $5. The shares of publicly traded companies with a price per share of less than $5 are commonly referred to as micro-cap stocks. These types of stocks usually trade on the Over the Counter Bulletin Board (OTCBB) and Pink Sheet stock exchanges. Because micro cap stocks often have less trading volume than other types of stocks, they normally cost less per share.
Many people view investing in micro cap stocks as the same type of investing as investing in more expensive companies. However, there are differences between micro cap stocks and other types of common stock. Unlike most other types of stocks, there are not scheduled annual general meetings, voting or dividend restrictions, and there is not an established accounting system. Also, like other common stocks, the highly asymmetric investments stocks are listed for sale on Over the Counter Bulletin Board. Investing in these securities requires a broker, like a stock dealer, to purchase the shares for you and sell you the shares at a later date.
Some investors are attracted to investing in micro cap stocks because of the low cost and high liquidity of the offerings. Because they are traded on an OTCBB and Pink Sheet stock exchange, there are no standard accounting guidelines and record keeping requirements. Investors can purchase shares as for their own personal use and can sell them for a profit when the company makes a profit. This makes micro cap stocks ideal for those who prefer to invest with low cost and high liquidity investments.
Although most penny stocks are traded on the Over the Counter Bulletin Board, some penny stocks are traded on the Pink Sheet stock exchange. Penny shares are considered high asymmetric opportunities because of the lower price per share compared to other common stock. Also, it is harder to determine the value of a penny stock compared to other types of micro cap stocks. However, if you are a savvy investor, you may be able to use trends, advice from other investors, and research to make a profit.
Penny stocks are thought of as a high risk vehicle, according to the Securities and Exchange Commission. Because they are not traded on traditional exchanges, there is no minimum required public company size. Therefore, it is impossible to know the financial health of a micro cap stock market. Per Share earnings are usually quoted as a range instead of a specific number, and the company's market cap is not usually published. Because of this, the key metrics commonly used to determine the health of a micro cap stocks are the company's PEG ratio, Return On Equity, and Earnings Per Share (EPS).
As with any investment, it is important to remember that all good things must end. A wise investor who is dedicated to learning about the micro stock market should only buy and sell shares of a company that has strong growth prospects and a solid earnings history. You do not want to get caught up in chasing after a hot penny stock. Make sure that you know what you are looking for before you dive in. Check out this post that has expounded on the topic: https://en.wikipedia.org/wiki/Small_cap_company.
