Market capitalization, also known as market cap, is the total value of a publicly traded company's stock. market capitalisation is one of the most accurate ways to measure a company's size within the stock market. before buying a company stock you should find out everything you can about that company to gain an understanding of what can be expected for the future of that company. market capitalisation is also important because it is an indication of what investors are willing to pay for its stock.
When creating your trading strategy, it is usually recommended that you include a mix of companies with varying ‘market caps’ to keep your stock portfolio well balanced.
- Large-cap companies are usually valued at $10 billion or more, are well established and have a history of steady growth
- Mid-cap companies are between $2 billion and $10 billion in market value that are expected to continue to experience steady growth
- Small-cap companies are usually valued between $300 million and $2 billion and a often younger companies that focus on a niche market. small-cap companies are generally considered the riskiest to invest in
Example of market capitalisation
The way one calculates a company’s market capitalisation is to take the number of shares of stock the company has issued and multiply it by the current market price of the stock. for example, if a company has issued 1 million outstanding shares with each share holding the value of $10, then the company's total market capitalization is $20 million.
key takeaways
- Market capitalization is the total value of a publicly traded company's stock on the stock market
- It’s important to understand the different between large-cap, mid-cap and small-cap companies
- Include a mix of companies with varying ‘market caps’ to keep your stock portfolio well balanced.