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Investors who purchase these types of securities are able to purchase a large number of shares at one time, increasing their potential for large profits. The reason investing in micro cap stocks is attractive to many investors is the potential for large returns. Since there is less investment capital, the potential for profit is also greater. Because of the low market cap, these types of securities carry less risk compared to other stocks in the same category. There is no minimum or maximum number of shares an investor can own. The market cap of the company represents the value of all of the issued shares multiplied by the total number of outstanding shares.
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The asymmetric risk reward carries a number of benefits including potential for large profits there is less risk compared to other forms of investing. Since the shares are traded on the Over the Counter Bulletin Board, there is no commission, delivery costs, or maintenance fees required. This type of investing is appealing to investors because of the low cost per share, compared to other types of investing. There are several reasons why investors prefer to invest in micro cap stocks including lower risk, potential for fast profits, and higher market capitalizations. Penny stocks are traded much like ordinary stocks in traditional markets but at a lower cost. The OTCBB is the largest and most liquid marketplace for securities. Penny stocks are usually traded on the Over the Counter Bulletin Board (OTCBB) and the Pink Sheets. There are several kinds of the micro-cap stocks on the market including blue chip companies that have been around for several years, high flying startups or organizations with an original product or service, as well as penny stocks. Micro cap is also a slang term for micro economy cap, which refers to a smaller company with less business influence and visibility. Many small cap companies are planned to be a growing concern and have already been around for several years. The smaller companies have more profit potential and are less stable than the larger ones.
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The shares of private companies with a value less than $5 million are generally called micro-cap stocks. In investing and business, micro cap stock usually refers to the share of ownership in a corporation that has a market cap of approximately $50 million to more than $300 million.