Importance Of Market Capitalization In Trading
If you listen to CNBC tv 18 regularly, you will definitely come across the terms such as large caps
, midcaps and small caps. So what does it really mean? In these terms the caps stands for Capitalization. It is one of the methods of classifying the stocks. This classification is known as Market capitalization.How to calculate the market cap?
Its very simple to calculate the market cap. All you have to do is to multiply the stock price of the company with the total number of shares outstanding.
They can be broadly classified into four categories namely:
1) Large cap stocks:
The companies which have a market capitalization more than $10 billion are generally considered as large cap stocks. The stock price of these companies will be highly priced. They are relatively stable and secure. These stocks are also known as blue chips.
2) Mid cap stocks:
The stocks of the companies which falls between the large cap and the small cap stocks are known as mid cap stocks. The market capitalization of these stocks will be between $2 billion and $10 billion. These stocks are more volatile than the large cap stocks.
3) Small cap stocks:
The stocks of these companies will be having the market capitalization less than $2 billion. Their track records will be short when compared to large caps and mid caps.
4) Nano caps:
The stocks of these companies will be having the market capitalization less than $50 billion. They are basically the small companies. To invest in these companies will be risky. Stock Market will be having high influence on the nano caps. If the market fluctuates the nano caps will also fluctuate.
Stocks can also be classified on the basis of the industry which they belong to. For example:- all the stocks related to bank will be grouped as bank stocks and so on. This kind of classification will generally help the investors to keep the track of that industry.
Why market caps are important?
You can invest in the companies with market caps suited for your liking. If you invest in large cap stocks, then they will be stable. As the market cap decreases the investment becomes risky. If you want to maintain the riskier portfolio, you can invest in mid and small cap stocks. While choosing the market caps, you have bear in mind about your goals. You can also have mixed portfolio by having the companies with different categories of market caps.
If you want to maintain the mixed portfolio and at the same time if you want to minimize your risk, then you can take the help of the stock advisory company which provides Intraday tips on all types of market cap stocks. In this way you can earn from stock market in the consistent basis. Market caps play an important role if you are into the Intraday trading.
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