What Does the Financial Term "Ankle Biter" Mean?

Also known as small cap stocks, ankle biters are stocks that carry a market capitalization that is under $500 million US dollars. Typically, an ankle biter carries risks that are a little different from securities that carry a higher capitalization, in that they can be somewhat more speculative. The fanciful name for the small cap stocks is based on the concept that these types of stock offerings trail behind options with larger amounts of capitalization, effectively nipping at the ankles of those larger offerings.

There are several benefits associated with ankle biter stock offerings. One benefit is the ability to secure shares of the stocks while they are relatively obscure in the marketplace and may be overlooked by other investors. Assuming that the company issuing the shares has the potential to grow over time, there is a good chance that shares purchased while the options are still considered in their infancy could eventually split, creating a significant amount of revenue for the investor. Selecting the right small cap stock offering at just the right time, then holding the option over the long-term can result in the generation of a great deal of profit that can be used to purchase other ankle biter offerings and enhance the worth of the financial portfolio.

Along with the potential that is associated with an ankle biter, there is also some risk. While many small cap stocks will continue to grow in value, possibly even to the point of reaching a level of market capitalization that is over the $500 million USD ceiling and be classed as large cap stocks, there is a significant chance that the ankle biters will remain small caps for many years. Should the ankle biter fail to perform as anticipated by the investor, the returns may remain somewhat low at best, or even become more or less worthless as the underlying company declines. For this reason, purchasing and holding speculative stock issues such as small cap stocks requires careful attention to detail, accurately assessing the potential of the issuing company, and monitoring the movement of the market value of those shares.

In spite of the potential disadvantages that are associated with ankle biter options, they often exhibit significant growth potential that helps to offset the risk involved. This is particularly true when the leadership of the issuing company has an established reputation that inspires confidence in the investment community, and the goods or services offered by the business are highly likely to compare favorably with other similar products. As the market share of the company increases, this will in effect help the ankle biter stock to grow, hopefully to the point of becoming large cap stop offerings, much in the way that a child grows into adulthood over time.