Small Caps
A small cap is a company whose total market value falls into a certain range that investors consider "small" compared to the giants of the stock market. That total value is called market capitalization, and it's calculated by multiplying a company's current share price by the number of shares it has outstanding. So a company with 50 million shares trading at $20 has a market cap of $1 billion.
Market capitalization is used to sort companies into rough size buckets — micro cap, small cap, mid cap, large cap, mega cap — because a $1 billion company and a $1 trillion company behave very differently even if their stock prices look similar. Small caps sit below mid caps and above micro caps in this ladder, though the exact dollar boundaries are not fixed by any single rule; different brokers, index providers, and data services each draw the lines slightly differently, and those lines shift over time as the overall market grows.
The nuance that trips people up is that "small cap" describes the size of the whole company, not the price of one share. A stock trading at $2 can belong to a company with a market cap in the billions, and a stock trading at $200 can belong to a genuinely small company with relatively few shares outstanding. Small cap is also not the same thing as "penny stock," though the two categories overlap heavily — small caps tend to have lower share prices, less trading volume, and more news-driven price swings than large, well-established companies, but the classification itself is purely about total company value.
Because the boundary numbers vary by source and change over time, it's worth checking whatever specific range a broker, screener, or index (such as the Russell 2000, which is often used as a small-cap benchmark) is actually using before relying on the label.
This term depends on a rule or threshold that changes over time, so no specific figure is quoted here. The current definition cites a specific $300 million–$2 billion small-cap range attributed to Investopedia. Market-cap band definitions vary by source and drift over time with overall market growth, so this specific dollar range should be checked against a current source (e.g. the broker's own classification, or an up-to-date Investopedia/index provider page) before publishing rather than assumed accurate.
Small caps typically have lower trading volume and wider bid-ask spreads than large caps, which means bigger price swings on smaller amounts of news or order flow — day traders are drawn to that volatility for quick moves but also face more slippage and gap risk getting in and out.
A biotech company has 40 million shares outstanding trading at $15, giving it a market cap of $600 million — solidly in small-cap territory. If a clinical trial headline hits, that stock might move 20% in minutes because there are relatively few shares changing hands, unlike a large cap where the same headline would move the price by a fraction of a percent.
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