The Gap between Large Cap & Small Cap

The great gap between large cap stocks and small ones is clear at the first sight. Hot penny stocks are those companies with shares trading less than $3 each. And there’re things, which make them truly ‘hot’ peace of bread for investors. One of the biggest advantages of trading small cap stocks is the opportunity to beat institutional investors. Because mutual funds have restrictions that limit them from buying large portions of any one issuer’s outstanding shares, some mutual funds would not be able to give the small cap a meaningful position in the fund. To overcome these limitations, the fund would usually have to file with the SEC, which means tipping its hand and inflating the previously attractive price. With small cap stocks, earnings per share can grow at a faster rate than that of larger companies. The reason: Devoid of layers of corporate bureaucracy, management can respond quickly to changing market conditions. Still, you better keep in mind that classifications such as “large cap” or “small cap” are only approximations that change over time. Also, the exact definition can vary between brokerage houses.