Companies worth roughly $300 million to $2 billion; higher volatility, thinner liquidity, wider spreads, and frequent share issuance.
Small-caps behave differently from the large end of the market. Spreads are wider, float is smaller, and the company often funds itself by selling stock through an at-the-market-offering, so dilution is a live risk rather than a theoretical one.
Borrow can be expensive or unavailable, which makes shorting costly, and options chains are thin or missing. Exits matter more than entries here: a position that took ten minutes to build can take a day to unwind in a panic.
Example: a $700M company with a 0.6% average spread costs 0.6% round trip in spread alone. A strategy that wins 1.5% per trade before costs keeps roughly 0.9% after.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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