Difficulties Trading
Many newer investors are interested in micro cap equities because of the possibility of rapid and significant gains. However, there are several risk factors for traders, and many of which go beyond simple issues and concerns with the operations of the company.
For example, shares trading for less than $5 are considered by brokers to not be "option eligible." Such securities are subject to higher trading commissions, much stricter levels for margin requirements, and usually can not be used to borrow against. Generally, unless it is option eligible, the equity can not be sold short.
In addition, depending on the liquidity of the underlying shares, and the exchange that the company is listed on, it can be problematic to sell your position. In extreme cases, investors may encounter difficulty liquidating their positions even when the shares are on the rise. This sort of problem is mainly prevalent on the Pink Sheets market, and less common among more legitimate exchanges such as the Nasdaq, OTC Bulletin Board or American Stock Exchange.
In addition, it is generally more difficult to find information of companies trading on the secondary markets. Often, a Pink Sheet company will be listed and traded, yet make no publicly accessible information regarding their financial position, the corporate fundamentals, or operational guidance.
For example, shares trading for less than $5 are considered by brokers to not be "option eligible." Such securities are subject to higher trading commissions, much stricter levels for margin requirements, and usually can not be used to borrow against. Generally, unless it is option eligible, the equity can not be sold short.
In addition, depending on the liquidity of the underlying shares, and the exchange that the company is listed on, it can be problematic to sell your position. In extreme cases, investors may encounter difficulty liquidating their positions even when the shares are on the rise. This sort of problem is mainly prevalent on the Pink Sheets market, and less common among more legitimate exchanges such as the Nasdaq, OTC Bulletin Board or American Stock Exchange.
In addition, it is generally more difficult to find information of companies trading on the secondary markets. Often, a Pink Sheet company will be listed and traded, yet make no publicly accessible information regarding their financial position, the corporate fundamentals, or operational guidance.
