What is 'Nano Cap'

Nano cap refers to small, publicly traded companies with a market capitalization below $50 million. Nano cap is as small as you can get in terms of market capitalization. The next step up from nano caps are micro cap stocks. Nano caps are very risky because they are such small companies and are particularly prone to manipulation. Nano cap stocks are often referred to as penny stocks and are quite popular with traders who have a large appetite for risk.

BREAKING DOWN 'Nano Cap'

Keep in mind that classifications such as large cap or small cap are only approximations that change over time. Also, the exact definition of the various sizes of market cap can vary between brokerage houses. Technically a stock can be a nano cap without being a penny stock. If the float of available shares is low enough, the market cap will still be under $50 million even if the actual price of the shares is higher than the penny stock threshold. Of course, penny stocks aren't even necessarily penny stocks. The definition of a penny stock was formerly a stock trading for under one dollar per share, but the Securities and Exchange Commission has moved that up to count all shares trading below five dollars per share. In short, these definitions are fluid at the best of times. For example, if there is enough global growth and increased investment across the world, the nano cap of the future may be redefined as $100 million or more. 

The Risks and Rewards of Nano Cap

Investors looking to invest in nano-cap companies should be aware that these small firms are often associated with a very high risk of failure. Small cap stocks, which start at $300 million in market capitalization and go up to $2 billion, is considered a risky place for investors to dabble in order to capture some aggressive growth. Nano caps ratchet up that risk and reward even more. Short-term returns in the double and triple digits do happen in nano cap stocks, but so do a lot of outright failures. On top of the legitimate failures, there is no shortage of pump and dump schemes. Nano cap stocks are prone to these problems because they are not as rigidly regulated as larger cap stocks that trade on reputable exchanges like the NYSE or Nasdaq. Some nano cap stocks will have reporting gaps, unaudited documents and other red flags that should discourage even the most risk seeking of traders.  

RELATED TERMS
  1. Mid Cap

    A mid cap is a company with a market capitalization between $2 ...
  2. Capped Rate

    An interest rate that is allowed to fluctuate, but which cannot ...
  3. Revenue Cap Regulation

    A form of economic regulation generally applied to utility companies. ...
  4. Russell 2500 Index

    The Russell 2500 Index is a broad index, featuring 2,500 stocks ...
  5. Small Firm Effect

    The small firm effect is a theory that holds that smaller firms, ...
  6. Secondary Stock

    A stock that is considered riskier than blue chips because it ...
Related Articles
  1. Investing

    1Q Small Cap Earnings Preview: The Tide Has Turned

    Earnings growth for small caps should trail large caps badly in the first quarter.
  2. Investing

    What's a Small Cap Stock?

    The “cap” in small cap stocks refers to a company’s capitalization as determined by the total market value of its publicly traded shares. Small cap stocks are generally defined as the stock of ...
  3. Investing

    How to Analyze Mid-Cap Stocks

    Mid-cap stocks often outperform both large caps and small caps with very little added risk.
  4. Investing

    Market Cap

    Learn more about how market cap represents the "price tag" of a company.
  5. Investing

    Which ETF To Choose: Small Cap Vs. Large Cap

    To get ahead, investors need to focus on rebalancing and diversification, rather than one asset class.
  6. Investing

    Small Caps Are Headed For A Pullback (IWM, VSS)

    The charts of the ETFs that track small-cap stocks look poised for a drop.
  7. Investing

    Valuing Large-Cap Stocks

    Investors seeking to preserve capital in volatile markets might want to consider large-cap stocks.
  8. Investing

    5 Ways Tata Motors Plans to Boost Market Share Next Year (TTM)

    Look at the top five things that Indian automobile company Tata Motors is doing to increase market share in 2016 in terms of both car models and marketing.
  9. Tech

    Cryptocurrency Market Cap Tops Record $500 Billion

    The combined market cap of all cryptocurrencies topped $500 billion for the first time this week.
RELATED FAQS
  1. Is there such a thing as a nano cap or micro cap index?

    While there are indexes that track micro cap stocks, there are few indexes tracking nano caps. Although definitions vary, ... Read Answer >>
  2. Are small cap companies a safer investment than large cap companies?

    Learn about the safety of small caps compared to large caps. Find out which key measures they differ on and which to pick ... Read Answer >>
  3. Are small cap companies more risky investments than large cap companies?

    Learn about the risk of small cap companies compared to large cap companies. Compare the volatility of both and learn how ... Read Answer >>
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center