Micro-cap.

In plain English

Micro-cap describes the smallest listed companies by market capitalization, a group that sits under small-cap in the standard size tiers and includes many thinly traded names. Boundaries between tiers are set by index providers and data vendors rather than by regulation, and the dollar cutoffs move as markets do. What defines the category in practice is the consequence of being that small: fewer shares outstanding, wider bid-ask spreads, little or no analyst coverage, and prices that can move sharply on modest order size. Some micro-caps trade over the counter with lighter reporting requirements than exchange-listed companies. The same lack of coverage that some investors find appealing also makes these names the usual target of pump-and-dump promotions.

01Why it matters

Trading costs and the ability to exit at a fair price matter far more here than in large companies, and those costs are paid in the spread rather than in a visible commission.

02The math, step by step

A micro-cap quotes 4.00 bid and 4.20 ask, a spread of 0.20, or 5 percent of the price. Buying and then selling 10,000 of it gives up roughly 500 in spread alone on the round trip, before any commission. A large company with a one cent spread on a 40 stock would cost about 2.50 on the same trade.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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