What are small-cap stocks?
Small-cap stocks provide great growth potential, making them appealing for traders and investors to get exposure. Discover what small-cap stocks are and learn how you can trade or invest in them.
What are small-cap stocks?
Small-cap stocks are companies with a valuation or market capitalisation between $300 million and $2 billion. These stocks are typically small companies that are considered to show potential to grow very quickly. This characteristic provides an opportunity for investors to buy in early and benefit as the stock rises.
While the growth opportunity that exists in small-cap stocks makes the security 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- or large-cap stocks, small-cap stocks are generally more volatile and riskier assets.
Note that small-cap stocks shouldn’t be misconstrued for startups, as they generally have a history of good performances, and they derive their classification from 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-caps 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.
Trade Urban Outfitters shares with us
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 or invest in small-cap stocks with us
With us, you’ll get exposure to small-cap stocks in two ways: trading and investing. The table below shows the differences of owning a CFD trading or stock trading account with us:
| Trading on small-cap stocks | Investing in small-cap stocks |
| Take a position via CFD trading | Invest using our stock trading platform |
| Leverage your exposure – you’ll only pay a deposit to get exposure to the full position size | Pay the full value of the shares you buy upfront |
| Leverage means both profit and loss will be magnified to value of the full trade – so you could gain or lose more money than you’d expect1 | You may get back less than what you put in because as much as the value of shares can rise, it can also fall as well |
| Take shorter-term positions | Focus on longer-term growth |
To get started, we’ve collated a few steps that will help you ready to trade or invest with us:
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How to invest in small-cap with us
1. Create an account or log in 2. Search for the stock you’d like to invest in 3. Select ‘buy’ in the deal ticket (you can only go long when investing) 4. Choose the number of shares you want to buy 5. 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
- Investors 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
- You can get exposure to small-cap stocks with us via CFD trading or stock trading
Footnotes
1 Traders stand to lose more than their deposit margin and their loss will exceed their initial deposit when they use leverage. Therefore, it’s important to take steps to manage your risk.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
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