What Exactly Is a Penny/Micro-Cap Stock?
In this article we’ll use the terms “penny stocks” and “micro-cap stocks” interchangeably. Technically, micro-cap stocks are classified as such based on their market capitalization while penny stocks are looked at in terms of their price. Definitions vary, but in general a stock with a market capitalization between $50 and $300 million is a micro-cap. (Less than $50 million is a nano-cap.) According to the Securities & Exchange Commission (SEC) any stock under $5 is a penny stock. Again, definitions can vary, some set the cut-off point at $3, while others consider only those stocks trading at less than $1 to be a penny stock. Finally, we consider any stock that is trading on the Pink Sheets or OTCBB to be a penny stock. The main thing you have to know about penny/micro stocks is that they are much riskier than regular stocks. For instance, junk bonds (bonds with a rating lower than BBB) are considered a much higher risk than those of investment grade (bonds with a rating higher than BB
