Small cap stocks refer to shares of companies with a relatively small market capitalization, typically between $300 million and $2 billion. These companies are often in the early stages of growth and may offer significant potential for expansion. Investors are attracted to small cap stocks for their ability to provide higher returns compared to larger, more established companies. However, investing in small cap stocks also comes with higher risks. These companies can be more volatile and less stable than larger firms, making their stock prices more susceptible to market fluctuations. Additionally, small cap stocks may have less liquidity, meaning they can be harder to buy or sell quickly without affecting the stock price.