With online investing becoming more popular and investors wanting to make larger gains in a shorter time, investors have been pouring millions to buy small cap stocks, that is, in companies with a small market capitalization. While such investments are always riskier, they become even more riskier because many investors are now trading with discount brokers instead of using the full service broker to make their trades. The difference is that a discount broker charges you less for each trade because it offers no investment advice.

When making an investment in a small cap stock be aware of the following:

• Because many small cap stocks are new, there is no historical financial track record of the company. With no financial track record, you will not be able to analyze the financial strength of the company. In other words, you are investing in a speculative company about which you know little.

• Small cap stocks are often run by individuals who might not have the management skills to create a large cap company.

• Small cap stocks are relatively unknown and hence are thinly traded. Consequently, any stock you purchase may not be easily sold because of few buyers.

• It is difficult to judge the quality of the company because there is such little information about it Larger and more reputable investment brokers will not follow such stocks because such companies are relatively new. Therefore you usually have to rely on information that hear about from the companies promoters.

• Beware of the information that you learn about small cap stocks from promoters. Promoters are paid by a company to promote a stock. They do not give out unbiased information or might not give you the true facts.

• Small cap stocks are easily manipulated because they are so thinly traded. Do not assume that because there is strong volume in a short period of time that you are dealing with a legitimate stock. Such companies are sometimes promoted heavily to permit insiders to sell their cheap stock to unwary investors. After buying such stock, investors might find that the price of the stock plummet for no reason.