The term "Microcap Stock" applies to companies with low or "micro" capitalizations, meaning the total value of the company's stock.
Microcap companies typically have limited assets.
Microcap stocks tend to be low priced and trade in low volumes.
Information is the investor's best tool when it comes to investing wisely.
But accurate information about "microcap stocks" - low-priced stocks issued by the smallest of companies - may be difficult to find.
Many microcap companies do not file financial reports, so it's hard for investors to get the facts about the company's management, products, services, and finances.
When reliable information is scarce, fraudsters can easily spread false information about microcap companies, making profits while creating losses for unsuspecting investors.
Many microcap stocks trade in the "over-the-counter" (OTC) market and are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the "Pink Sheets."
The OTCBB is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many OTC securities that are not listed on the Nasdaq Stock Market or a national securities exchange.
Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities.
Fraudsters often claim that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it is.
They may also trade in The "Pink Sheets" The Pink Sheets - named for the color of paper on which they've historically been printed - are listings of price quotes for companies that trade in the over-the-counter market (OTC market).