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Investors looking for higher risk and higher potential profit often turn to nano-cap stocks. A nano-cap stock is a stock with a total market capitalization of less than $ 50 million. While very few nano-cap stocks make headlines, they may represent greater growth potential than large-cap stocks. Many nano-cap stocks are hot stocks under $ 5 as well, making them an attractive choice for day traders and scalpers.
Want to invest in nano-cap stocks, but don’t know where to start? Our guide to nano-cap stocks will help you get started. We’ll also show you some nano-cap stocks that investors are considering for 2020.
Overview: nano-capitalization actions
A nano cap stock is a stock with a total market capitalization of less than $ 50 million. You can calculate a company’s market capitalization by multiplying its current stock price by the total number of outstanding shares issued by the company. Nanocap stocks are the smallest stocks by market cap.
Nanocap stocks generally represent very small companies and can be riskier investments compared to large cap and megacap stocks. Nano stocks are associated with high failure rates and can be subject to very rapid and drastic price changes. However, nano-cap stocks also offer a number of opportunities that large companies do not.
Some of the benefits of investing in nano-cap stocks include:
- Decline in general share prices: Many nano-cap stocks are also considered “penny stocks,” which are low-cost stocks that attract investors with limited capital. Investing in nano-cap stocks may allow you to buy more stocks and invest in more companies, as most nano-cap stocks are also stocks under $ 20.
- Higher growth potential: Since nano-cap stocks are significantly smaller than mid- to large-cap companies, they have a higher potential to change prices quickly. This can produce a greater return on investment if the business becomes profitable.
- More volatility: Nanocap stocks exhibit much higher volatility than larger stocks. While this may not be positive if you are a long-term investor, many investors take advantage of this volatility by day-trading or scaling nano-cap stocks.
Investing in nano-cap stocks can be very risky. But if you do your homework and avoid putting all your financial eggs in one basket, it can be very rewarding too.
Best Online Brokers for Nano Cap Stocks
Investing in nano-cap stocks (or any type of stock) starts with finding the right broker and opening an account. If you don’t have a brokerage account yet, take a look at some of our favorites below.
Features to look for in Nano Cap stocks
Nanocap stocks are risky investments, which means you need to do your due diligence before investing. Here are some characteristics to look for when you start investing in nano-cap stocks.
- Trading on a large stock exchange: Stocks listed on major US stock exchanges (like NASDAQ and NYSE) must meet certain financial and deposit requirements before they can be bought and sold. This makes it much more difficult for companies to artificially inflate their stock prices. To protect your investment, look for nano-cap stocks listed on major stock exchanges.
- Met or exceeded consensus BPA estimates: The value of a company’s earnings per share (EPS) is equal to its current income minus dividends divided by the current number of shares outstanding. It’s normal for nano-cap stocks to have negative EPS values - these stocks are usually offered by companies that are not yet fully established. Instead of looking at just BPA, look at how the company’s current EPS compares to its “consensus EPS,” expert estimates of how the stock should behave. A title that consistently meets or exceeds expectations is a good choice.
- High average trading volume: If you are a day trader or trader looking for short term investments, look for nano cap stocks with a high average daily trading volume. Nanocap stocks with an average daily trading volume of over 100,000 stocks will be much more liquid than those with a lower trading volume.
High risk, high reward potential
With a plethora of stocks under $ 10 and unlimited potential, investing in nano-cap stocks can be exciting. However, it’s important to remember that nano-cap stocks also have significantly higher failure rates than larger-cap companies. If you do choose to invest in nano-cap stocks, be sure to invest your money only in companies that you have carefully researched – and never invest more than you can afford to lose.
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