In this article we will analyze the concept of share capitalization. This aspect, fundamental in the Stock Exchange sector, should be observed from several points. This feature gives us an excellent measure to be able to assess the size of a company. Also called market cap, the market capitalization of a company compares the number of securities and their price per share.
If you are interested in trading on shares, visit our section dedicated to trading on shares with CFDs.
Market capitalization can help investors compare different companies, and then be able to decide which company to focus on in the future. It may be the case that companies with stocks with a low price per unit have a higher capitalization than others.
At the same time, cryptocurrencies are becoming more and more popular in the world of transactions, and understanding how they work can lead investors to take advantage of every opportunity. The concept of cryptocurrency changes slightly. The capitalization of crypto-currencies is in fact defined by the number of currency in circulation and its value.
What is share capitalization, definition
Share capitalisation refers to the market value of the outstanding shares of a listed company. This value is obtained by multiplying the number of shares by their current market price.
Since the available shares are bought and sold in public markets, the so-called market cap could be used as an indicator of public opinion on the value of a company. It is considered a very important factor in some forms of share valuation. Market capitalization is used by investors to classify company and stock exchange sizes. Their capitalization is given by the set of securities traded for their own value. Sometimes this measure can also be very different from the nominal value.
Investors are often inclined to subdivide their securities into different categories with respect to their market capitalization. There are large, medium and small-cap stocks. This division of companies can also lead to listing on different sections of a stock exchange. In the Italian Stock Exchange, Italian large capitalization companies are listed in the blue chip segment of the MTA. With the term Blue chip, we want to identify companies with high share capitalization.
Market Capitalization on the Italian Stock Exchange
Borsa Italiana is the company that manages the national financial market, within it you can find different sectors, depending on what you intend to trade.
In particular, with regard to shares, it is necessary to refer to the MTA (Mercato Telematico Azionario). This sub-fund of the Italian Stock Exchange is in turn divided into several categories, including:
- FTSE MIB is the most important stock index of the Italian Stock Exchange, where the shares of the 40 Italian companies (even those with registered offices outside the national borders) with greater capitalization are gathered.
- The FTSE Italia Mid Cap index considers the prices of medium-large companies, i.e. all those that are part of the Blue Chip MTA and MTAX segment, but without the requirements to be included in the index of larger companies.
- FTSE Italia Small Cap is the index representing low capitalization shares, which represent 4% of the market value of the Italian Stock Exchange.
- The FTSE Italia STAR index is a market index managed by the Italian Stock Exchange that includes public companies with capitalization between 40 million Euro and 1 billion Euro.
Together, the first three indices form the aggregate FTSE Italia All-Share index.
In 2017, the total capitalisation value of all companies listed on the Milan Stock Exchange increased to almost 650 billion euros, an increase of 22.7% compared to the beginning of the same year.
Perhaps you are interested in: how to trade on the FTSE MIB index of Borsa Italiana.
Market Capitalization Of Cryptocurrencies
The world of cryptocurrency works in a similar way to the stock market but some notions are slightly modified. The market capitalization of a cryptocurrency is in fact that value given by the number of coins currently in circulation for their value. This concept is often called market cap.
However, market capitalization cannot be an absolute way to classify cryptocurrencies and understand their true value.
Equity Capitalization of a Company
In every company listed on the stock exchange, capitalization is a very important fact, in fact it represents the value that the stock exchange to which it belongs attributes to a specific company.
This is in fact associated with the level of liquidity of a security. When taking into account the stock of a company in the stock market, one cannot but analyze the so-called free float of a stock. That is, the share of capital that is not in the hands of the group that directly controls the company, ie that held by private and institutional investors. This share can be traded freely on the MTA.
The free float is an excellent index of the liquidity of a stock. When this share is small in relation to the total, small trades in shares will be enough to cause strong price fluctuations. Obviously, the free float must be only a small part of the total share capitalization of a company. If, for example, the free float were the entire share, the company in question would no longer be owned by any particular person.
It is important to note that all companies wishing to be listed on the stock exchange are required to provide a minimum free float to the market. For example, low capitalization companies must provide 10% of the capitalization, while the minimum level for mid-range companies is at least 35%.
Market Capitalization Bitcoin
Bitcoin is the world’s most famous cryptomonet. The ability to trade anywhere in the world without direct need of money has brought it to everyone’s lips. Its presence dominates and guides the cryptocurrency market in many aspects, from the price per currency to the total value. The strong expansion of this market has allowed Bitcoin to grow rapidly, attracting more and more investors.
All these virtual coins have the defect of being very unstable, they are in fact always considered a very volatile commodity.
Many investors have decided not to bet on bitcoin and other cryptocurrencies, considering them unpredictable. However, you can study the trend of these currencies, which provide a real alternative to the stock market.
Understanding how a company is ranked – whether it is considered large, small, or medium-sized – can help you make smart investment decisions.
In general, if we consider companies with a high level of capitalisation, they tend to have more capital and more possibilities than those considered small or medium sized, and are often considered to be a low risk investment.
However, temporarily smaller companies may have great potential for growth yet to be discovered. In doing so, these companies are an excellent example of capital gains. If a small company were to succeed in conquering the market, the value of its shares would increase enormously in a short period of time.
For those who want to invest and become part of a company, it is necessary to buy a part of its package of shares. Those who assume that the high price of a share represents the size and strength of a company are often misled. To know the true value of a company, it is often not enough to rely on the price of a single share, but it is necessary to take into account many factors.
In some cases, a company’s stock price may be lower or have a higher market capitalization than a higher stock price. In this respect, this factor is a good indicator of the overall size of a company, and at the same time can help investors to compare companies with shares of similar price.