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How to Invest in Micro Caps

Original post by Sean Mullin of Demand Media

Peformance data on microcaps stocks may be unreliable.

Microcap stocks represent small-market companies with low assets. The price of microcap stocks is typically less than $8, sometimes much less. Some microcap stocks are legitimate investment opportunities, but overall, the market is unregulated and fraudulent transactions are common. "Microcap stocks are among the most risky [investments]" according to the Securities and Exchange Commission (SEC). Disreputable brokerage firms offering microcap stocks may be manipulating the price or attaching large mark-ups. Some investors lose their entire investment, and microcap stocks are difficult to sell. Investing in microcap stocks involves thorough research and working with a reputable stockbroker.

Step 1

Always perform your own research. Don't follow leads on microcap stocks that come from cold calls, e-mailed spam or untrustworthy newsletters.

Step 2

Search for microcap stocks through online over-the-counter listing companies such as the OTC Bulletin Board and the OTC Markets Group. Be aware that over-the-counter listings are either lightly regulated or entirely unregulated.

Step 3

Research a company before purchasing stock. Ask company representative whether it registers its securities with the SEC or a state securities regulator. Examine the company's most recent regulatory filings. Be sure that a certified accountant has audited the company's financial statements.

Step 4

Read the company's business model. Scrutinize its products, services and targeted markets. Avoid companies with implausible business plans or profit projections that seem too good to be true.

Step 5

Contact a reputable brokerage firm that sells microcap stock. Submit a bid to purchase shares of the company's stock.

                   

Tips & Warnings

  • Over-the-counter stocks with the letter E attached to their four-letter stock symbol have not met the deadline for filing their financial reports with the SEC.

Resources

References

About the Author

Sean Mullin has been creating content for providers such as eHow since 2007. He also worked in an online writing center for college students. In addition to writing, Sean has a Master of Arts in classics and teaches Greek and Latin part-time at the college level.

Photo Credits

  • Hemera Technologies/AbleStock.com/Getty Images

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