UK Accounting Glossary
Investors may perceive a small-cap stock as having greater growth potential than a large-cap stock. A small-cap stock may be more likely than a large company to adopt or create innovative new technologies or services. A small-cap stock often has a lower level of institutional interest, as many funds have limits on the percentage of a company they may own. This, in turn, increases the trading volatility of a small-cap stock, potentially allowing for more extreme (more profitable) entries and exits.
A small-cap stock does tend to carry more risk than a large-cap. With a less diversified and potentially unproven business model, a small-cap stock is susceptible to ever-changing economic/market conditions.
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This glossary post was last updated: 5th February 2020.