what is a small cap stock 
a small cap stock is a stock from a public company whose total market value or market capitalization is about 250 million to 2 billion the precise figures vary small cap stock investors are generally looking for up and coming young companies that are growing fast that is they re looking for the large cap stocks of the future 1understanding small cap stocksthe cap in small cap stands for capitalization the term in its entirety is market capitalization this is the market s current estimate of the total dollar value of a company s outstanding shares to calculate a company s market capitalization multiply its current share price by the number of outstanding shares classifications such as large cap or small cap are approximations that change over time furthermore the precise definition of small cap stocks versus large cap stocks may vary among brokers one misconception about small cap stocks is that they are startups or brand new companies in reality many small cap stocks are of companies that are well established businesses with strong track records and great financials and because they are smaller small cap stock share prices have a greater chance of growth small cap stock vs large cap stockas a rule small cap stock companies offer investors more room for growth but also bring greater risk and volatility than large cap stock companies a large cap offering has a market capitalization of 10 billion or higher for large cap stock companies such as general electric ge and coca cola co ko aggressive growth may be in the rear view mirror such companies offer investors stability and dividends but rarely fast growth 1that said whether smaller or larger companies perform better over time varies on many factors for example large cap stock companies dominated during the tech bubble of the 1990s as investors gravitated toward stocks such as microsoft msft cisco csco and aol time warner after the bubble burst in march 2000 small cap stock companies became the better performers as many of the large caps hemorrhaged value in the crash 2one advantage of investing in small cap stocks is the opportunity to beat institutional investors many mutual funds have internal rules that restrict them from buying small cap stock companies in addition the investment company act of 1940 prohibits mutual funds from owning more than 10 of a company s voting stock this makes it difficult for mutual funds to build a meaningful position in small cap stocks 3a stock smaller than a small cap is known as a micro cap that is a publicly traded company with a market capitalization of less than 250 million 1small cap stock vs mid cap stockinvestors who want the best of both worlds might consider mid cap stocks which have market capitalizations between 2 billion and 10 billion historically these companies can offer more stability than small cap stock companies yet confer more growth potential than large cap stock companies 1however for self directed investors spending the time to sift through small caps to find a diamond in the rough can prove to be time well spent even in our data rich world great small cap investments fly under investors radars because they get little coverage from analysts small cap stock vs penny stockshares in both small cap stocks and penny stocks have lower market value than large or mid cap stocks penny stocks have small market capitalizations so they could be considered small cap stocks however there are specific characteristics that make a stock a penny stock which not all small cap stocks share penny stocks have share prices lower than 5 some are traded on the new york stock exchange most though are traded directly known as over the counter or through pink sheets rather than through a stock exchange 4penny stocks are considered high risk investments due to their unlike a penny stock small cap stocks can have a share price of 5 and higher they are categorized based on their market capitalization advantages and disadvantages of small cap stockspotential for growthlower share pricevariety of businessesless popularvolatile priceshigh riskless available informationlow liquidity