Microcap stocks are generally defined as stocks with a market cap of $50 million to $300 million. So the next logical question is, what is market cap?
Market cap is short for market capitalization and is the market value of shares outstanding. Market cap is found by multiplying the share price of a stock by the total number of its shares outstanding. Microcap stocks are generally traded on the OTC (or over-the-counter) Bulletin board or Pink sheets markets. There are no listing requirements for these markets. However, stocks traded on the OTC bulletin board (OTC.BB) must file updated financial reports with the SEC or with their banking or insurance regulators in a timely manner. Those companies failing to file these reports are removed from the OTC bulletin board listing. Generally Microcap stocks are new companies or ones with no track record and are known for being the most risky stocks. Some of these risks include lack of public information, the lack of liquidity and high volatility associated with the OTC.BB and pink sheet markets.
To see the SEC's Microcap stock guide go to http://www.sec.gov/investor/pubs/Microcapstock.htm.
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