by 
The Curious Bag
-
Market capitalization is the term used to define a company's size, not sales or assets. The most widely used references are small-, mid- and large-cap, but newer terms like mega-cap, micro-cap and nano-cap are also used.
Definition
The formula to determine market capitalization is simple--number of outstanding shares x current share price = market capitalization. A small-cap stock is usually defined as having a market capitalization between $300 million and $2 billion.
Advantages
Investopedia explains, "One of the biggest advantages of investing in small-cap stocks is the opportunity to beat institutional investors." Certain rules prevent mutual funds from taking significant positions in small-cap companies.
Subjectivity
What defines a small-cap stock changes over time and fluctuates between sources. Investorwords.com defines it as a market cap between $250 million and $1 billion, while Investorglossary.com defines it as a market cap between $500 million and $2 billion.
Volatility
Lower non-institutional investment in small-cap stocks increases trading volatility. For the investor this means more profitable trading is possible.
Risks
Due to increased volatility, there is also additional risk involved investing in small-cap stocks. Investors who do not understand the potential for loss should seek advice from an investment professional.
Source:
RELATED QUESTIONS
Copyright 2023, Wired Ivy, LLC