Pros of choosing stocks by market cap Back to list

Member SinceMar 07, 2022

Posts 230


Sep 22, 2022 a 12:27
Because it informs investors about the relative size of one company versus another, market capitalisation is commonly used to help inform decisions about which stock to invest in. As a result, investors divide stocks into three categories based on market capitalisation: large-cap, mid-cap, and small-cap.

Large-cap companies typically have a market capitalisation of $10 billion or more, mid-cap companies have a market capitalisation of $2 billion to $10 billion, and small-cap companies have a market capitalisation of $300 million to $2 billion. The cut-off values for each category can be ambiguous and vary by country.

Market capitalisation is a simple and relatively effective method of risk assessment. Because large-cap companies are well-established and stable, investing in them is thought to provide long-term rewards with less risk. Mid-cap companies have high growth potential but are riskier than large-cap stocks but not as risky as small-cap stocks. Small-cap companies are frequently regarded as a high-risk investment due to factors such as limited financial resources.

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