A guide to beginners to understand market capitalization (market capitalization)
Because the popularity of cryptocurrencies continues to increase, the understanding of market capitalization has become a crucial aspect for anyone trying to invest or exchange cryptocurrencies. In this guide for beginners, we will break down what is market capitalization, how it works and will provide an example to help you understand this fundamental concept.
What is market capitalization?
Market capitalization, usually indicated as market capitalization, represents the total value of shares in the circulation of a company. It is calculated by multiplying the number of shares around the current market price per share. In other words, market capitalization gives you an idea of how much money they are collected in exchange for such actions in circulation.
How do market capitalization work?
To understand market capitalization, let’s take a look at a simple example. Suppose we have two companies:
- Company A: Actions in circulation = 100 million
- Company B: Actions in circulation = 50 million
If the market price of company A is $ 10, and that of company B is $ 20, our calculation for market capitalization would be:
- Market capitalization (A) = 100,000,000 x $ 10 = $ 1 billion
- Market capitalization (company B) = 50.000.000 x 20 = $ 1.00 billion
Note how the capitalization of the company A ($ 1 billion) company is significantly higher than that of company B ($ 1.00 billion). This illustrates why market capitalization can be a strong value in the evaluation of companies.
Factors influencing market capitalization
Market capitalization is influenced by several factors including:
- Number of actions in circulation
- The current market price per share
- Trading volume (how often is the stock purchased and sold)
- Company Industry and Financial Services
These factors can have an impact during the market of a company. For example, if a company has a low commercial volume or a high volatility of the price of its shares, its market capitalization can float more significantly.
Why are you interested in market capitalization?
Understanding market capitalization is essential for anyone who invests in cryptocurrencies or taking into account the purchase and sale of securities on the market. That’s why:
* Diversification
: By spreading your investments in different activities, such as lower -market capitalization cryptocurrencies, it is possible to reduce exposure to a volatility of a certain activity.
* Investment strategies : Knowing the market capitalization of a company can help you choose adequate investments for risk tolerance and investment goals. For example, if you are looking for stable yields, you can prefer actions with a higher market capitalization.
* Cryptocurrency comparison
: When evaluating different cryptocurrencies, understanding their market capital will help you evaluate the relative size and potential risks.
Example: How to calculate market capitalization
Suppose we want to buy 1,000 shares of a new cryptocurrency called “cryptox”. If the current price is $ 0.05 per share, our calculation for Cryptox market capitalization would be:
- Number of actions in circulation = 1,000
- Current market price per share = $ 0.05
- Market capitalization (Cryptox) = 1,000 x 0.05 USD = $ 50
Understanding market capitalization, it is possible to make more informed decisions regarding the investment in cryptocurrencies or other activities.
Conclusion
Market capitalization is a fundamental concept in the world of financial markets and cryptocurrency. By understanding this concept, beginners can develop a better understanding of the market and make more informed investment decisions. While the cryptocurrency space continues to evolve, it is essential to keep up to date with these concepts to browse in the complex world of investments.
In our next article, we will explore other key aspects of cryptocurrencies, such as blockchain, decentralized finance (DIFI) and the future of digital resources. Stay tuned!
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