Making Small Cap Stock Purchases
Publicly traded companies are companies that issue stocks for trading on the various stock exchanges. Small cap refers to companies whose market capitalization (number of shares available for trades multiplied by the price of the shares) is less than $2 billion. Small cap stocks trade on the New York Stock Exchange (NYSE), the NADSDAQ and the American Stock Exchange (AMEX) markets. Purchasing small cap stocks is no different from purchasing other stocks. Here is how to purchase small cap stocks.
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Instructions
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Research discount stockbrokers and banks offering brokerage services. Pay attention to their fees, commissions and time of executions. Open and fund a brokerage account with any stockbroker of your choice. Most brokerage houses accept funds through bank-to-bank transfers, money orders, wire transfers and personal checks.
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Research small cap stocks. Visit stock research websites like Morningstar and Yahoo! Finance, and check trading activities of companies with market capitalization of less than $2 billion. Look at their stock prices, return on equity (ROI), management history, earnings per share (EPS), current earning and annual earnings for the past 5 years. Write down the ticker symbols of the stocks that meet your criteria.
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Log onto the trading platform of your stockbroker using the username and password supplied by your stockbroker. Following on-screen instructions, enter the ticker symbol of your stock, the quantity you are buying, the type of trading you want to execute, including Day or Limit. Choosing "Day" tells your stockbroker to execute the trade immediately, while "Limit" tells him to buy at a certain price and how long you want the order to be in effect. Click "Buy."
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Verify your order when the next window opens. Pay attention to the name of the company, the ticker symbol, quantity of stocks and the cost of the order. When you are satisfied, click "Place Order" to complete the stock purchase.
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Tips & Warnings
Before placing your order to buy small cap stocks, make sure you have the funds in your account to complete the trade unless your stockbroker has approved you for margin trades. In margin trades, you use your stockbroker’s money to complete your buy order and pay your stockbroker back the funds with interest when you sell your stock.
Verify your stock trades before placing your order. Trades are non-reversible once your stockbroker executes them. Good stockbrokers execute trades in 5 seconds or less after you place the order.
Using margin trades helps you make money faster in the stock market, but your losses mount twice as fast because you are trading on borrowed funds.
Small caps stocks are volatile because of their small capitalization. Watch your stocks closely, and sell quickly to either lock in your profit or cut your losses short. Small cap stocks are issued by small companies, unknown companies or firms in financial difficulties, so be careful when purchasing small cap stocks.
