Market Capitalization Definition: Day Trading Terminology
Market Capitalization, better known as Market Cap, is a measurement used to classify a company’s size, which can be categorized between small, medium or large cap with sub-categories from there. It is a simple calculation that takes the stock price and multiplies it by the number of outstanding shares. Understanding what the market cap is of a company is important to understanding how big the company is compared to its competitors.
It’s easy to confuse that a stock with a higher stock price than it’s competitors doesn’t necessarily mean that it is a bigger company because they could have less shares outstanding and in reality be a smaller company.
The different market caps are broken down into the following categories:
- Mega Cap – this category contains the largest public companies with $200 billion or higher market caps
- Large Cap – companies in this category have a market cap between $10 billion and $200 billion, which is where most of the popular household names fall
- Mid Cap – these companies range from $2 billion to $10 billion and is where most growth stocks will be found
- Small Cap – this category contains new companies that are looking to get into growth phase, usually ranging form $300 million to $2 billion
- Micro Cap – consisting mostly of penny stocks with a market cap range of $50 million to $300 million
- Nano Cap – this is where you will find the penny stocks mostly trading OTCBB and on the pink sheets, considered very risky assets with a market cap range of $50 million and lower
Larger company’s are generally considered a safer investment while smaller cap company’s are considered riskier investments because they lack the resources and track record that the larger companies have. However, smaller market cap companies can be more attractive to active traders because of their potential for larger intraday moves.
Warrior Trading Pro Tip
We like to focus on small market cap stocks that have a low float, usually less than 100 million shares, that have a good news catalyst on it. This gives a stock the potential to make huge intra-day moves as buyers pile in and take prices higher. Larger company’s can move too but it takes more capital to buy there stock compared to a stock that has less than a $5 stock value and the percentage of the moves is generally a lot less.