Stock Indices and Market Capitalization
An index tracks a basket of stocks with a single number. The interesting part is not which stocks are in it, but how they are combined, because the weighting scheme determines the index's behaviour entirely.
Market capitalisation
The market's valuation of the whole company. Note it says nothing about the company's size in revenue or employees, only what investors think the equity is worth.
Most indices use free-float adjusted market cap, counting only shares actually available to trade and excluding stakes held by founders, governments or strategic holders. This matters because an index fund can only buy the float, so weighting by total shares would demand more stock than exists in the market.
The weighting schemes
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