What it is
Small-cap is a classification for companies with a market capitalization between approximately $300 million and $2 billion. These companies are generally younger or operate in niche markets compared to large-cap firms. While they often possess higher growth potential due to their smaller base and ability to innovate quickly, they also carry greater risk and volatility, as their financial resources are typically more limited.
Small-cap stocks are often tracked by indices like the Russell 2000, which can serve as a benchmark for their performance. During economic expansions, small-cap companies can outperform larger firms as they are more sensitive to domestic economic growth. However, they are also more vulnerable during recessions. Retail investors might consider small-caps for diversification and higher return potential, but should be aware of the increased risk.
Why it matters
Small-cap stocks offer high growth potential and diversification benefits, but come with increased volatility and risk. They can be a source of significant returns if chosen carefully.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice