What Are Microcap Stocks?
What Are Microcap Stocks?
Probably the most basic of questions to ask when you’re learning about microcap investing is “What are microcap stocks?” Well, to obtain a solid definition you need to break down the word into its two syllables—“micro” and “cap”. Now most of you know that the word “micro” denotes something of small size, or something of reduced size. The word “cap”, however, is not as easy to nail down at first glance, because you have to know a little something about stock market lingo in order to get the full meaning of it. Basically, the total value of a company is known as its “market capitalization”, or “market cap” for short. This is what the company is worth, and if you were to take all of the shares of a company multiplied by the current price per share, you will have arrived at the company’s total market capitalization. Now we all know that these numbers can be “fudged” by shady accountants and so forth, but for the sake of keeping things relatively simple, let’s assume that everyone is being honest. (LOL)
Anyway, as the stock market evolved, it became evident that some companies were simply larger than others, so there began to be a “class system”, if you will, for companies of different sizes. The huge companies that are worth billions (think GE, IBM, AT & T, etc.) are known as “large cap” companies (a.k.a., the “blue chips”), and then there’s a whole other segment of companies that are not quite at blue chip status, but are worth hundreds of millions of dollars apiece. These are known as the “mid cap” companies, and many of them trade on the NASDAQ exchange. But then, you get to the companies that are generally worth less than $300 million; these companies are known as the “micro cap” companies, also referred to as small cap stocks. The companies with extremely small market caps (in the neighborhood of less than $50 million) are called nano cap stocks. Some people use a space between the words “micro” and “cap”, while others (like myself most of the time) that run the two words together, i.e., “microcap”. There’s really no right or wrong standard as to the spelling. Some even add a hyphen in there (i.e., micro-cap) for flair. Whatever floats your boat, man.
But that’s pretty much it…microcap stocks are simply the stocks issued by these microcap companies. As with any company, the shares issued to the public can be traded on exchanges such as the NASDAQ (National Association of Securities Dealers Automated Quotations) or the AMEX (American Stock Exchange), or the OTCBB (Over the Counter Bulletin Board). Truth be told, you won’t find a lot of microcap companies on the NYSE (New York Stock Exchange), because the NYSE is known for only carrying the “big boys” of the stock market investing world. Most trading nowadays is done electronically, so you can buy and sell microcap stocks in the blink of an eye, unless you’re dealing with the more illiquid stocks on these different exchanges, which happens when a stock doesn’t have a lot of trading volume (more on that later). There are literally tens of thousands of microcap stocks to trade, and the profit opportunities are virtually endless, especially if you understand a few things about trading stocks using technical analysis, which we will dig into a lot on this site. In the meantime, be sure to check out our other microcap investing articles…hopefully they’ll add to your knowledge bank and increase your understanding of stock trading in general.
