Understanding everything that is involved in investing or trading small cap stocks takes study over a period of time. Many favor large cap stocks over small cap stocks because the brands are known. But which is better for you and your situation? Investing in small cap stocks is a great way to diversify your portfolio with some shares of lower capitalized companies. These stocks often offer better returns as they have higher beta values and move quicker than other stocks. Just be careful of the risks.

If you are looking to purchase and hold small cap stocks within mutual funds, understand that different funds define what is a small-cap stock in different ways.The traditional definition of a small-cap stock is one with the market capitalization between $300 million and $2 billion.