One of the main ways to categorize
stocks is by their
market capitalization, sometimes known as
market value.
Market capitalization (market cap) is calculated
by multiplying a company's current stock price by the
number of its existing shares. For example, a stock with
a current market value of $30 a share and a hundred million
shares of existing stock would have a market cap of $3 billion.
One size doesn't fit all
Stocks
are usually designated large-cap, medium- or mid-cap, and
small-cap. Some experts also add a special category of micro-caps,
or stocks with even smaller market capitializations.
In general, large-cap stocks tend to
be less volatile than small-cap stocks. This is because
small-cap stocks generally represent younger, less-established
companies that do not have the financial resources of larger
companies and are thus more vulnerable to a downturn in
the economy.
As you might expect, mid-cap stocks
can offer a middle ground between the growth potential of
small-caps and the reduced volatility of large-caps. Mid-caps
typically cost less than large-cap stocks and are less vulnerable
in economic downturns than small-caps.
Stocks
are usually designated large-cap, medium- or mid-cap, and
small-cap. Some experts also add a special category of micro-caps,
or stocks with even smaller market capitializations.
