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 Funds. Funds are baskets of securities designed to follow a specified index. Leveraged Funds seek to amplify the returns of an index and inverse Funds, or “short Funds,” are designed to deliver the inverse performance of a specified index.
Per the SEC, leveraged and inverse Funds are designed to achieve their objectives on a daily basis, meaning that the performance of these Funds 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.
Elevated volatility. Stocks & Funds that have recently experienced significant increases or decreases in price (i.e., volatility) may be riskier than stocks that have lower recent volatility.
Crypto. We’ve added a special label to cryptos we offer to make sure our members have the full context before making a decision. On our crypto pages in the app, you’ll see a Volatility Reminder flag, which lets you know that cryptos may be more volatile than some of the other investments you may hold in Public.
Securities that trade OTC (Over-the-counter): Investors face greater risk when investing in more speculative OTC securities for a variety of reasons. Loose or no listing requirements can make it difficult to source accurate and timely financial, management, and other information about many of these companies since reporting standards are not as strict. This can make it difficult to detect whether the company is performing, is acting in poor faith, or is even fraudulent. Additionally, OTC securities can be illiquid, be subject to large bid-ask spreads, trade infrequently, and may lack the market depth that can be found with most listed companies. These companies tend to be more volatile and experience large price swings than more mature companies.
Please note that these reminders are for educational purposes only and are intended to give you context. They do not serve as investment advice on a particular type of investment or individual crypto.
If you ever have questions, the team is always here for you, so feel free to give us a shout on the app’s Chat or via email at email@example.com.
Note: we apply safety labels on a best efforts basis and do not guarantee that all securities that could include a safety label based on these criteria include said safety label. The lack of a safety label does not mean that the security is not risk or does not meet the criteria for a safety label. See Public.com/disclosures for additional disclosures.