Market capitalization

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In the simplest sense, market capitalization is an indication of the public's opinion (reflected by the market based on perceptions of future prospects for the company) regarding a company's net worth. It is a major factor in stock valuation.

Also known as "market cap," market capitalization measures corporate or economic size (share price X the number of shares a public company has outstanding). Think of market cap as the price you would pay to buy all shares of a single company. In effect each dollar of market value is one "vote."

More pertinent to traders is that some equity index products are market-capitalization weighted -- Standard & Poor's 500 Index, Russell 2000, Wilshire 5000, FTSE 100, Hang Seng, Nikkei 225, and others; Nasdaq-100 (modified-capitalization weighted), while the Dow Jones Industrial Average (DJIA) is price weighted.


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