You might see a Safety Label as you proceed to buy an individual stock on Public. These will appear in the order flow as an added step that appears before you make the purchase.
This added step is designed to make you aware that the stock has certain attributes that may make it riskier than other investments on Public. Importantly, the Safety Label is NOT investment advice. It is simply added context that we think you might want to have prior to making the investment.
You can always proceed with the purchase of a stock that has a Safety Label. Just tap continue to proceed with your order.
Public is a broker-dealer and we do not offer investment advice. As it is not our place to assess individual stocks, we rely on a trusted third-party—the Securities and Exchange Commission (SEC)—to help our members understand the potential riskiness of an investment.
Here are some signals for a potentially risky stock, as per the SEC’s website:
Companies that have filed for bankruptcy. Per the SEC, investing in bankrupt companies is risky because “although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company's plan of reorganization will cancel the existing equity shares.”
Companies with small market caps, specifically “micro-caps” (less than $300 million in market cap) and “nano-caps” (less than $50 million in market cap). Market cap is a key indicator of a company’s total net worth and is calculated by multiplying the share price by the total number of outstanding shares.
The SEC notes that micro-cap and nano-cap stocks can be risky for a few reasons. For one, “it's hard for investors to get the facts about the company's management, products, services, and finances.” This can make these types of stocks prone to misinformation.
In addition, micro-cap and nano-cap stocks tend to be more volatile and less liquid. Liquidity is a measure of how quickly stocks can be bought or sold. Stocks that are illiquid can be difficult to sell at the moment you want them to, which could mean taking a bigger loss than you intended or not being able to take a profit.
Leveraged and inverse ETFs. ETFs are baskets of securities designed to follow a specified index. Leveraged ETFs seek to amplify the returns of an index and inverse ETFs, or “short ETFs,” are designed to deliver the inverse performance of a specified index.
Per the SEC, leveraged and inverse ETFs are designed to achieve their objectives on a daily basis, meaning that the performance of these ETFs in the long-term can be substantially different than the daily objectives. In other words, there is a risk of suffering significant losses even if the long-term performance of the index showed a gain.
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