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Market volatility, volume, and system availability may delay account access and trade executions.

Clients must consider all relevant risk factors, including their own personal financial situations, before trading. Not investment advice, or a recommendation of any security, strategy, or account type.īe sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Investors in biotech micro caps, for example, scrutinize management strength, capital structure (especially debt), pipeline opportunity, and whether the company may be acquired or otherwise link up with a bigger company.Ĭlearly this tiny slice of the market is not for everyone, but for those considering micro caps, it’s important to go in with eyes wide open, aware of the risks, and having done your homework.Ĭontent intended for educational/informational purposes only. Through micro-caps, investors can also gain exposure to young but potentially large, rapid-growth industries-biotechnology, for example. But keep in mind the reputation for risk is well earned. That can create potential diversification benefits. stock market, according to Russell indices, which means the performance of these companies doesn’t usually correlate highly with the rest of the market. Micro caps comprise less than 3% of the entire U.S. If the risk is so high, why even bother with ultra-small stocks? companies in Financial Services, Health Care, Technology, and other industries.Īs of January 31st, 2021, companies in the index had an average market cap of about $1.8 billion. Market professionals may follow the Russell Microcap Index, which includes more than 1,300 exchange-listed U.S. Penny stocks can be traded through many brokers, including TD Ameritrade.įind your best fit. Many penny stocks trade on so-called “pink sheets” or the “over-the-counter bulletin board” (OTCBB), which are basically electronic stock quotation services that enable companies not listed on a major stock exchange to trade. That’s why they may be susceptible to fraud and manipulation, the SEC says. In addition, because some of these companies may not regularly file reports with the SEC and haven’t met strict listing requirements to trade on major exchanges like the NYSE or Nasdaq, there’s often little information available on these businesses. Because they’re so thinly traded, “any size trade can have a large percentage impact on the price of the stock,” the regulator says. Other penny stocks may have been “blue chip” stocks in a prior life, but fallen on hard times, and others may be established companies that simply have a low stock price.Īnother risk involves low trading volume, “which may make it difficult for you to sell your shares when you want to do so,” the SEC says. Some have no assets, operations, or revenue, or their products and services may be in development or have yet to be tested in the market, the SEC notes. Many penny stocks are issued by new, startup companies with no proven track record. What makes them more risky than larger, more widely-held equities? Securities and Exchange Commission (SEC), and typically trade exclusively over-the-counter.

For comparison, the 30 stocks on the Dow currently have an average market cap of over $200 billion.Ī penny stock generally trades at less than $5 per share, according to the U.S.

Micro-caps may be listed on an exchange or trade exclusively over-the-counter. Micro-caps typically have market capitalizations between $50 million and $300 million (stocks under $50 million are often called “nano caps”). Still, for some retail investors, it’s worth learning a few basics about penny and micro-cap stocks and keeping an eye on these under-the-radar nooks and crannies of our markets. So why trade them? Penny stocks are definitely not for everyone, but some traders have a bit of the risk taker inside them and thus have a bigger appetite for risk. Penny stocks and micro-cap stocks are typically less liquid, more volatile, and carry higher risk than traditional stocks traded on established exchanges. When compared to shares of larger, more well-established companies, trading penny stocks or micro-cap stocks is often viewed as a riskier trade, and there are bona fide reasons for that. Micro caps aren’t highly correlated with the broader market and can offer diversification and other benefits, but also risk that can be greater than that of the broader market Micro-cap stocks typically have market capitalization between $50 million and $300 million