FAQ - How Are Microcap Stocks Different From Other Stocks - South Florida Litigation and Arbitration Attorney
How Are Microcap Stocks Different From Other Stocks?
Lack of public information. Often, the biggest difference between a microcap stock and other stocks is the amount of reliable publicly-available information about the company. Most large public companies file reports with the SEC that any investor can get for free from the SEC's website. Professional stock analysts regularly research and write about larger public companies, and it is easy to find their stock prices on the Internet or in newspapers and other publications. In contrast, the same information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes and making it less likely that quoted prices will be based on full and accurate information about the company.
No minimum listing standards. Companies that list their stocks on exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies quoted on the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link) or Global OTC generally do not have to meet any minimum listing standards, but are typically subject to some initial and ongoing requirements. You can find the OTCBB's eligibility requirements for stocks at http://www.finra.org/industry/faq-otcbb-frequently-asked-questions and you can find additional information about OTC Link and Global OTC at www.otcmarkets.com and www.globalotc.com , respectively.
Risk. While all investments involve risk, microcap stocks are among the most risky. Many microcap companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to microcap stocks involves the low volumes of trades, which may make it difficult for you to sell your shares when you want to do so. Because many microcap stocks trade in low volumes, any size trade can have a large percentage impact on the price of the stock. Microcap stocks may also be susceptible to fraud and manipulation.
Please be advised that the above information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. If you have any questions relative to the contents of this post, you should consult a qualified professional.
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