What Are Small Cap Stocks?

By Gilbert Stockton

The label 'Small Cap Stocks' itself is self explanatory. It simply means stocks of small companies whose market capitalization is under five hundred million. In the stock market, the size of a firm is not decided by the number of employees it has or the profit it makes over a year but is rather measured by the market value that it holds. Although it sounds complicated, believe you me, it helps a great deal to get the true picture of a company's size.

Before you decide to invest in small cap stocks or penny stocks know their advantages and disadvantages. It is true that many do not favor small cap stocks but that does not mean you as an investor can make a lot of money by investing in a small cap stock.

The Advantages: They have a larger profit margin because they are from small companies. These companies have a lot of growth potential and can increase the market value of an investor by a larger margin than a company that has been around for many years. Small cap stocks allow you to move up with them changing your small cap investment into large capitalization.

The disadvantages: Many small cap stocks are a risk because competition is dominated by larger companies that have the revenue to oust the competition. You do not have any data or information on earnings because they are new and as a result you aren't completely sure if the company is stable like you would with other companies that have been around for a long time.

Although the media usually focuses on the dark side of small cap stocks, you should always remember that many a times investing in such stocks is a wise decision to take.

In conclusion, just remember to do your research and ensure that you pick a stock that has a growth potential and do not be afraid to take a risk for a large return. - 23208

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