First, let's define these terms. Most stocks which trade on NASDAQ (Microsoft, Dell Computer, etc.) are a part of the National Market System. Smaller stocks with less following amongst brokerage firms and investors trade on either the NASDAQ Small-Cap market or the Bulletin Board market. Investors can identify these lower-tier stocks by the fact that you will be unable to find price quotes for them in most local newspapers.

Small-Cap and Bulletin Board stocks tend to be unproven, start-up companies, which means that they are speculative, high-risk investments. Investors should only invest money that they can afford to lose in these types of stock. Likewise buying options is very risky as is concentrating more than 20 percent of your portfolio in a single stock.

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