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Small cap stocks are shares of those companies that are having relatively small market capitalization. Market capitalization is technical term that means the value of the company is the market. It is calculated by multiplying the current value of the share with the number of outstanding stocks of the company. To be precise we need to also consider the bonds of the company to determine the value of the company. A small cap company usually has a market capitalization of $250 million to $2 million. Stocks of these companies are referred as small cap stocks in the stock market.

All said and done it should be kept in mind that these terms like the small cap stocks are not absolute in nature. As the market capital of the companies is not static and changes over the period of time the small cap stocks also change to become mid cap or large cap stock in future. But one thing is certain that a small cap stock is sure to become a mid cap or large at a point of time. Many investors find it attractive to invest in the small cap stocks, as they cost less and will give large profit in the future. Especially for long term investors small cap stocks are viable investments.

Though the small cap stocks are sure to rise, the time required for it to become a mid cap or large is not certain. It absolutely depends on the performance of the company. Therefore, while making investment in the small cap stocks, you need to be extra cautious. Moreover, it takes a long time for these small cap stocks to rise to a significant price in the stock market and many things can happen during this period. So, only invest in small cap companies that are financially strong, has a trustworthy management, deals in a potentially strong sector and has good reputation and history making profit.



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