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Stocks listed on an exchange can vary greatly in terms of market capitalization. From multi billion dollar companies in the S&P 500 to small prerevenue businesses, the stock market has something for everyone.
However, a certain subset of stocks is often overlooked by investors and traders, as they flock to the most exciting stocks with high growth potential.
Nano-cap stocks are the smallest possible group of stocks that consists of companies with market capitalization at or below $50 million.
These are companies that have small operations and may be limited to a specific region of a country, without offering their products/services nationwide.
Nano-cap stocks typically do not attract much activity on the market and for this reason, investing in them can be risky, as large trades can distort and manipulate the price.
Large companies often acquire nano-cap stocks and delist them from the market, especially if these stocks are from disruptive technology companies.
If you are a beginner investor and would like to know more about what nano-cap stocks are and how they are different, this Investfox guide is for you.
To understand nano-cap stocks and their role on the stock market, it is important to define their key features that set them apart from the rest of the market.
Nano-cap stocks have market caps lower than $50 million, which can create unique scenarios and affect investor behavior.
Here are some key characteristics of nano-cap stocks:
It is important to note that nano-cap stocks are highly risky investments and thorough due diligence is required for prospective investors to gather as much information about the company as possible.
To better illustrate how a nano-cap stock works, let’s look at a real-life example of one. Arrival S.A (NASDAQ:ARVL) is a nano-cap stock with a market capitalization of just $18 million.
Arrival is working on developing electric buses and mini buses for various applications.
However, you may be wondering how an automaker has such a small market capitalization.
Arrival is a pre-revenue stock that has been hemorrhaging cash ever since going public in 2020.
For this reason, investors have been skeptical about the company’s ability to deliver its first road-ready vehicles before running out of cash reserves.
This investor skepticism has grounded the stock, which once had a market capitalization in the billions.
Arrival is far from an isolated case and many out of favor companies have become nano-cap stocks in the past.
Overall, nano-cap stocks are a diverse group of stocks that include companies that have fallen out of favor with the investment community, as well as companies with small-scale operations.
A nano cap stock refers to a publicly traded company with an extremely low market capitalization, typically under $50 million. These stocks are considered highly speculative and can be illiquid, making them risky investments due to their small size and limited trading activity.
Yes, nano cap stocks are highly risky. Their small market capitalization, limited liquidity, and often unproven business models make them susceptible to price volatility and potential investment losses. Investors should exercise caution and thorough research when considering such stocks.
The market capitalization of nano cap stocks can be highly volatile and at any point, the smallest stocks can interchange. However, some of the smallest nano cap stocks can have a market capitalization figure as low as $1 million.