What Are Microcap Stocks and Why Are They So Profitable?

The hot topic in today's stock market is microcap stocks. If you've ever wondered what they are and why they are making people a ton of money then read on and you will learn why they are so profitable.

If you have ever traded stocks or know someone who has invested or traded stocks then you will know that the blue chip stocks take forever to increase in value. They are high priced stocks too. You are lucky if you see a gain of 10% in one year let alone one week. Microcap stocks are a different breed of stock altogether. First of all they are low priced stocks. Microcap stocks can easily gain 25% + in just one day. And if there is good news on a particular microcap stock then it can sometimes jump 100% and more.

Common sense will tell you that it is a lot easier for a stock to jump from 2 cents to 10 cents (500% gain) than it is for a stock to go from $20 to $100. Right? Well, that is exactly why microcap stocks are so lucrative and why smart traders include micro caps in their trading portfolio. Now you might be asking what it is that makes micro cap stocks rise in value so quickly. It is almost always because of positive news announcements about the microcap company whose stock you are trading.

Let's use this example: if a certain microcap company that sells shoes sends out an announcement that it has received a contract to sell its shoes in Wal Mart stores nationwide, any savvy investor or trader will jump at the chance to buy shares in that company. Profits selling those shoes in Wal Mart across the country are sure to increase! So the stock is a good value.

Now it doesn't always have to be a big-time announcement it can also be that the microcap is climbing in value because of continued positive progress the company is having and which traders and investors are expecting.

It should be noted that sometimes positive news does not affect the microcap shares one way or the other. This is because of low trader or investor awareness. This low awareness is because microcap companies usually do not contract with investor relations firms and therefore, even with positive news, they have a hard time selling their stock.

So just because a company has positive news it does not always mean the stock will rise in value. To find microcap stocks that are on the brink of making enormous gains in value you have to look for one thing. VOLUME! It is the volume surges in micro caps that you need to see when you are looking for those big gainers. High volume + rising stock price=buying pressure.