So what’s the difference between large-cap vs small-cap stocks?

Quite a bit actually!

In this article, we will help shed light on market capitalization, differences between large and small-cap stocks, and things to consider when trading both types.

What is Market Cap?

Market cap is a measure of a company’s value that investors are placing on the company at a given point in time. This measure refers to the total dollar value of a company’s outstanding shares of stock.

Outstanding shares include all shares — those available to the general investing public and restricted shares held by and available to specific groups.

To calculate the market cap, simply multiply the share price of a stock by the total number of shares outstanding.

Formula

Market Capitalization = Number of Shares Outstanding x Price

For example, a company with 30 million outstanding shares selling at $10 per share would have a market cap of $300 million.

Based on their current market caps, stocks of publicly traded companies are classified into large-cap, mid-cap, and small-cap. Some traders, breakdown the list further to include micro caps and mega caps at the extremes.

Let’s dig deeper into large caps and small caps.

What is a Large Cap?

Large-cap stocks are shares of companies with market capitalizations of $10 billion or more.

These companies are dominant in their respective industries and typically have major influence over the economy.

Their businesses are more diversified and may include a wide range of services and products in multiple industries.

What is a Small Cap?

Small-cap companies typically have a market value that ranges from approximately $300 million to $2 billion.

They are often new companies that are struggling financially or focused on a niche market.

Generally, small caps have a narrow focus, operating in a few locations and offering a smaller number of services or products.