Thursday, January 13, 2011

an audit of micro-cap stocks

By Sue Carter


Among the most important arsenals of an investor is information. Before investing his hard-earned cash on a company, an investor must know everything relevant information about it. However, some companies only have limited information available about them, which makes them more vulnerable to schemes and fraud. One of these is microcap stock companies. If you're planning to invest in these stocks, here are a few things you should know.

Penny stocks are companies which are are publicly traded have a value not exceeding $100 million US dollars. A majority of stocks in the US belong to this category, but they only consist of a small portion of the entire value of the stock market. Because of this, penny stocks are traded only in minimal amounts and small volumes.

Don't expect to encounter these companies in AIMEX or in NASDAQ, because these stock exchanges have certain requirements they can't meet. Only big and established companies can trade in these primary exchanges because they already have a high net value. So where can you trade these stocks? Typically, they are traded in two ways through the OTC (Over the Counter) market. They can appear in the Pink Sheets, a listing of price quotes of different companies trading in the OTC market. Or, they can be quoted through the OTC Bulletin Board, an electronic system providing real-time updates on quotes, volume information, and prices.

What distinguishes these from other kinds of stocks is the accessibility of reliable public information. You would hardly find any data pertaining to companies at this level of investment since stock analysts rarely research them or do write-ups about them. The reason for this is that most big-time investors have no interest in low-value, medium-scale companies. This causes these companies to have very limited trading capacities. Also, the inadequacy of accessible information makes them a susceptible target for investment shams.

Also, one of the reasons why these stocks are rarely seen in major stock exchanges is that because they lack the minimum requirements. They are mostly seen in the Pink Sheets and OTCBB since these stock exchanges does not require any minimum requirements, unlike in NASDAQ or AIMEX, which would require minimum amounts of net assets and minimum number of shareholders.

Aside from that, going into this level of trading can be a risky venture. The stocks have no available track record due to their being new in the stock trading business. Also, most products of these companies are still undergoing testing, and some still need to be developed.

Another point of consideration is that they have unstable prices because they are traded in low volumes and low values. So if you trade a share for another kind of stock, it will have a big effect on stock prices. Keep these risks in mind if you're planning to go into microcap stock trading.

It would benefit you to study and read up more on microcap stocks since this article just covers the basics. It is best to be well-informed, so that you can make wise moves and decisions in the end.




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1 comment:

  1. I would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well.

    penny stock advice

    ReplyDelete