All investments involve some risk, but microcaps and nanocaps are among the riskiest. Many of these companies are still in the startup phase. It is common for them to have minimal assets, products that are still in the development stage, no profits, and minimal revenue.

The low volume of shares that trade daily is another reason why microcaps are considered high-risk. A lower trading volume makes it more difficult for investors to sell shares at the price they want. Since there are fewer shares trading regularly, any size trade can have a significant impact on stock prices.