A micro-cap stock is a stock with a total market capitalization between $300 million and $2 billion. These stocks are often smaller, less established operations. But these companies have limitless potential to grow into micro-cap stocks in the future.
Micro-cap stocks often invite investors with a higher tolerance for risk because they can change price quickly. Take note if you’re a value investor because many of these shares are stocks under $20.
Be sure to do your homework if you’re thinking about investing in micro-cap companies. Our guide to these stocks will help you evaluate micro-cap corporations and offer you a few stocks to watch.
Quick Look at the Best Micro-Cap Stocks:
Overview: Micro Cap Stocks
A micro-cap stock is a stock with a market capitalization that ranges between $300 million and $2 billion. You can calculate a company’s total market capitalization by multiplying its current share price by the number of shares outstanding. These stocks are usually issued by smaller companies that aren’t household names.
There are a number of benefits that come with micro stocks, including:
- More potential for profit: These stocks can be hot stocks under $5. If you have a limited amount of capital to invest, putting your money into strong micro-cap corporations can give you more potential for profit.
- Higher growth potential: The larger a company’s market capitalization, the more difficult it is to show significant year-after-year growth. The stocks can grow more effectively, which leads to larger returns on your investments.
- More volatility: Though this might not be a very appealing feature if you’re a long-term investor, these stocks also tend to show more volatility than larger companies. Day traders and scalpers often turn to them when they want to capitalize on drastic daily price movements.
Investing in micro-cap stocks is significantly riskier than investing in larger companies. It can be more difficult to find information on micro-cap stocks compared to large-cap and mega-cap stocks because fewer experts provide analysis reports. Micro-cap companies may also fail or go bankrupt without notice, which can lead to significant capital losses. Because there are fewer buyers for micro-cap stocks, price manipulation and fraud are not uncommon.
Best Online Brokers for Micro Cap Stocks
Beginning your stock trading journey starts with opening a brokerage account. As an everyday investor, you can’t buy or sell any stock directly. Instead, you must work through a broker, a financial professional or firm authorized to buy and sell securities on your behalf.
If you don’t already have a brokerage account, consider 1 of our favorites below.
Best For:
Active and Global Traders
Securely through Interactive Brokers’ website
securely through Plus500 Yield's website
securely through public.com's website
securely through Robinhood's website
Best For:
Global Broker for Short Selling
securely through TradeZero's website
Features to Look for in These Stocks
These stocks are associated with more risk and a higher rate of failure than larger companies. To protect your investment, look for these 3 characteristics before you buy:
- Continued growth: A big advantage of these stocks over large-cap stocks is that they can grow more effectively. Though many of these stocks have debt and negative earnings per share (EPS) values, a strong record of year-over-year growth can mean that the company is steadily approaching profitability.
- Trading on a major exchange: In order to trade on the New York Stock Exchange or the NASDAQ, a company must meet basic financial documentation requirements. This makes it significantly more difficult to execute acts of fraud or artificial price manipulation. You may want to avoid micro stocks that trade only on OTC exchanges because these can be very risky investments.
- High daily average volume: A stock’s average daily volume is the average number of shares that change hands every day. If you’re a day trader or you’re looking to take advantage of quick price movements, look for a micro-cap stock with a higher daily trading volume. This ensures that you’ll be able to execute your positions when you think it’s best — not only where there are buyers on the market.
Moving Your Portfolio With Micro Caps
Investing in these stocks can be thrilling — there’s nothing more exciting than the idea that you might have the next “big winner” in your portfolio. It’s also very important to remember that these stocks are not risk-free investments — they may fail at any time.
Be sure to selectively add micro-cap companies to a balanced portfolio primarily made up of large-cap stocks, total market index funds and S&P 500 funds.
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A micro-cap stock is one that is worth between $300 million and $2 billion.
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Micro-cap stocks can change price quickly, so investors need to stay on top of the prices to see success.
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Oftentimes, you can find micro-cap stocks for under $20.