The Calculation
Market capitalisation (market cap) is straightforward: Share Price × Number of Outstanding Shares = Market Cap. If a company has 1 billion shares outstanding and each is worth £50, its market cap is £50 billion.
Market cap changes in real-time as the share price moves. It's not a fixed measure of a company's worth — it's the market's current assessment of what the company is worth.
Size Classifications
Companies are typically classified by market cap:
- Large-cap — above £10 billion. Established companies like BP, HSBC, Apple. Generally more stable, more liquid, and lower risk.
- Mid-cap — £2-10 billion. Growing companies with established businesses but more room for expansion. Balance of stability and growth potential.
- Small-cap — below £2 billion. Younger or niche companies. Higher growth potential but also higher risk, lower liquidity, and wider spreads.
Some classifications include mega-cap (above £200 billion — Apple, Microsoft, Amazon) and micro-cap (below £300 million).
Why Market Cap Matters for Traders
Market cap affects liquidity, volatility, and the amount of analyst coverage a stock receives. Large-cap share CFDs have tighter spreads and more predictable price behaviour. Small-cap share CFDs can move dramatically on relatively small news but may have wider spreads and less reliable execution.
Market cap also determines index inclusion. The FTSE 100 includes the 100 largest UK companies by market cap. When a company's market cap grows enough to enter the index (or shrinks enough to leave), it triggers automatic buying or selling from index-tracking funds — which can move the share price.
Market Cap vs Company Value
Market cap represents the equity value of a company — what the stock market thinks the shares are worth. It doesn't account for debt or cash. Enterprise value (market cap + debt − cash) gives a more complete picture of what it would actually cost to acquire the company. For fundamental analysis purposes, enterprise value is often more useful than market cap alone.
Key Takeaways
- Market cap = share price × outstanding shares — updated in real-time
- Large-cap: £10B+, more stable. Small-cap: under £2B, more volatile.
- Larger companies have tighter spreads and deeper liquidity for CFD trading
- Index inclusion/exclusion is driven by market cap changes
- Enterprise value (market cap + debt − cash) gives a more complete picture
