Microcap stocks may provide investors with genuine investment opportunities. Investors should be aware, however, that many microcap stocks are the subject of fraudulent, manipulative, and abusive sales practices. Manipulation Many microcap stocks are traded by one or just a few brokerage firms. Because of this, the broker may control most of the market. This makes it very easy to take unfair advantage of investors by manipulating market prices through aggressively marketing the stock.
All investments involve risks.
Microcap stock investments, however, can be highly speculative and involve the risk of losing your entire investment. There is often a large difference between the price the investor paid for the stock from the brokerage firm and the price at which the stock can be sold by the investor. Thus, the investor has no information about the financial position or operating history of the company, which greatly increases the risk to the investor. Stocks Manipulative sales and hidden mark-ups result in artificially inflated stock prices. However, when the manipulation ends, the stock prices often plummet.