Glossary
Small-cap stock
A company with a relatively small stock-market value, often roughly $300 million to $2 billion, though index providers draw the lines differently.
A small-cap stock is a share of a company whose total market value is modest compared with the giants of the market. A common rule of thumb puts small caps at roughly $300 million to $2 billion of market capitalization, but there is no official boundary. Size matters because small companies tend to grow faster, trade less, swing harder and get less analyst coverage than large ones.
How the lines are drawn
Each index provider uses its own method. The Russell 2000, the best-known small-cap benchmark, simply takes the 2,000 companies ranked just below the largest 1,000 in the Russell 3000, so its cutoffs float with the market. S&P's SmallCap 600 uses a market-cap range, set at $1.2 billion to $8.0 billion in its July 2025 guidelines, plus profitability and liquidity screens. A company can therefore be "small" in one index and mid-cap in another.
What to watch for
Small caps carry higher business risk: thinner balance sheets, fewer product lines and more sensitivity to credit conditions. Lower trading volume can mean wider spreads and more slippage. The long-studied "size premium," the idea that small stocks earn more over time, has been inconsistent across decades, so it is a debated tendency rather than a law. Small caps are not the same as penny stocks; many are established, profitable firms.