What is market cap? Market capitalization explained

Market capitalization is what the stock market says a company's equity is worth right now: the share price multiplied by the number of shares outstanding. It changes every time the price moves. Investors use it to compare companies by size, because a share price on its own says nothing — a $500 share can belong to a smaller company than a $20 share.

Companies are often grouped by size. Common US conventions are roughly: large caps above $10 billion (mega caps above $200 billion), mid caps between $2 billion and $10 billion, and small caps between about $300 million and $2 billion. The thresholds vary between index providers and countries.

For a listed company, and for a cryptocurrency:

Market cap (stock)  = share price × shares outstanding
Market cap (crypto) = price × circulating supply
Fully diluted value = price × maximum supply

A company with 1 billion shares trading at $50 has a market cap of $50 billion; if the price rises 10% to $55, the market cap becomes $55 billion. Index providers usually work with free-float market cap, which counts only the shares actually available to trade and leaves out, for example, large blocks held by founders or the state.

Market cap helps you judge size and risk. Large caps tend to be more liquid and less volatile; small caps can grow faster but swing harder and can be harder to trade. It also sets index weights: in a cap-weighted index such as the S&P 500, the largest companies move the index the most.

In crypto, read market cap together with fully diluted value (FDV). A token with 100 million coins in circulation at $2 has a market cap of $200 million. If its maximum supply is 1 billion coins, its FDV is $2 billion — ten times higher — which tells you a lot of future supply could weigh on the price as it is unlocked.

Market cap is not the amount of money invested, and it can't necessarily be cashed out at that value. It applies the last traded price to every share, so in thinly traded stocks or small tokens a modest amount of buying can inflate it, while trying to sell a large holding would push the price down.

It also ignores debt. Two companies with the same market cap can have very different balance sheets; enterprise value (market cap + debt − cash) is the better yardstick when comparing businesses. And size is not valuation: a $1 trillion company can be cheap and a $100 million company expensive — for that you need ratios such as P/E.