What are small-cap stocks?
Small-cap stocks provide great growth potential, making them appealing for traders to get exposure. Discover what small-cap stocks are and learn how you can trade on them.
What are small-cap stocks?
Small-cap stocks are companies with a market capitalisation or valuation between $300 million and $2 billion. These stocks are typically small companies that have to grow quickly, providing an opportunity for investors to buy in early and benefit from rising stock rises.
While the growth potential of the small-cap maybe appealing to investors, there’s an inherently high level of uncertainty in getting exposure to these businesses.
When compared to companies that’ve been established for a long time with a good track record, like mid-cap stocks or large-cap stocks, small-cap stocks are generally more volatile and riskier assets.
Note that small-caps stocks shouldn’t be misconstrued for startups, as they typically have a history of good performance and are classified based on their market value.
How are small-cap stocks categorised by market capitalisation?
Market capitalisation differentiates between publicly traded companies by their total market value to classify them into three categories: small-, mid- and large-cap stocks.
These categories are not indicative of the size of the company or how long it has been established. That’s because valuation measures the performance of the stock price at a given time and companies could move in and out of these ranges quite often.
| Category | Market capitalisation |
| Micro-cap companies | Less than $300 million |
| Small-cap companies | $300 million to $2 billion |
| Mid-cap companies | $2 billion to $10 billion |
| Large-cap companies | $10 billion to $200 billion |
| Mega-cap companies | More than $200 billion |
Small-cap vs. large-cap stocks
| Characteristic | Small-cap stocks | Large-cap stocks |
| Market capitalisation | $300 million to $2 billion | $10 billion to $200 billion |
| Growth potential | Lots of room for growth | Small room for growth |
| Level of risk | High risk | Low risk |
| Volatility | Very volatile | Reduced volatility |
| Stability | Less stable | Like to remain stable in comparison |
| Buy in | Lower cost to own the stock | Much higher cost to get exposure |
Examples of small-cap stocks
Urban Outfitters
Urban Outfitters is a retail giant that sells designer brands around the world. The multinational company is headquartered in Philadelphia, USA, but operates across Europe and Asia. The clothing company is on the cusp of moving up to mid-cap stocks, with a market capitalisation of $1.9 billion on 29 June 2022.
Himax Technologies
Himax Technologies is one of the world’s leading providers of semiconductor solutions. The company’s products feature display imaging processing drives for electronic devices such as TVs, laptops, mobile phones, and so much more. Himax has a market cap of $1.6 billion.
Paysafe Limited
Paysafe is an online payment company that offers users a secure channel to transfer their monies. The headquarters of the company are in London, UK and it has a market cap of $1.4 billion.
How to trade small-cap stocks with us
With us, you’ll get exposure to small-cap stocks via CFD trading. This derivative product enables you to take a position on the spot (cash)and options prices through buying and selling any financial assets without taking ownership.
You’ll enter into a contract to exchange the difference in the price of an asset from the point at which the contract is opened to when it’s closed. CFDs also enable you to trade on leverage, whereby you’ll only put down a fraction of the full value size as your deposit to open a position.
Remember that while leverage amplifies your profits, you also stand to lose more money than your initial deposit as your exposure is calculated based on the full position size. You’ll need to take suitable steps to manage your risk carefully.
To get started, we’ve collated a few steps that will help you ready to trade with us:
- Research your preferred market
- Open an account or practise on a free demo account
- Select your opportunity
- Set your position size and manage your risk
- Open and monitor your position
Small-cap stocks summed up
- Small-cap stocks are companies with a valuation or market capitalisation between $300 million and $2 billion
- Traders find small-cap stocks more attractive than mid and large cap stocks because they have the opportunity of buying in early in a company hoping that it grows in the future
- You can differentiate between small-cap stocks and other categories using the market capitalisation of the company
- Companies that are classified as small-cap stocks may not remain in that category for long due to its volatile nature
- Get exposure to a variety of small-cap stocks with us via CFD trading
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