Market capitalization

How it's calculated

Market cap = shares outstanding × share price

The price changes with every trade, but the share count changes only when the company reports it or after corporate actions such as offerings, buybacks and splits. That makes the share count the weak link: a figure built on an old count can be well off after a reverse split or a large offering. Labels such as small-cap and large-cap have no single official cut-off; index providers and brokers draw the lines differently. Investor.gov has a short definition of market capitalization.

Why it matters

Size is a rough proxy for things traders care about. Smaller companies tend to have thinner liquidity, wider spreads and larger percentage swings, and they're more exposed to dilution from new share offerings, which can cut a rally short. Market cap is not liquidity, though: a large company can still trade thinly before the open.

Example

For example, a hypothetical company has 45 million shares outstanding and trades at $12.00, so its market cap is 45,000,000 × $12.00 = $540 million. If the price falls to $11.00, the market cap becomes $495 million. The same company crosses a $500 million line on a move of about 8%.

Common mistakes

• Using a stale share count after a reverse split or an offering.
• Confusing market cap with float, the shares actually available to trade.
• Treating a size filter as a quality filter.

How PatternX uses it

In Momentum Lab the market-cap filter is mandatory. You pick one of three minimums:

A stock exactly at the minimum passes. A stock whose market cap is unknown never passes and shows as "Skipped — Market cap unavailable". With IBKR data, the figure comes from IBKR when available; otherwise it is calculated from SEC EDGAR filings as shares outstanding × the lower of the last price and the previous close, and labeled "derived"; otherwise it comes from Polygon. With Alpaca data, which has no market cap, Polygon is the only source. More in the market-cap filter guide.