Market-cap weighting is a method of combining an index where each member's influence is proportional to its total market value. The largest companies by market value can account for a large share of the index's movement even when they are a small fraction of the total number of holdings.
How it works
Under market-cap weighting, a company's influence scales with its total value: the bigger the company, the more it moves the index.
It is the most common method for major global indices, so concentration in a few giants is a normal property of the number.
Why it matters
Cap-weighting concentrates exposure in the largest companies, which is a risk property worth understanding before buying a tracking product.
An ETF inherits the index's weighting, so the method tells you how concentrated the product is.
A simple market example
In a cap-weighted index, a handful of the largest companies can drive most of the daily movement, because each one's influence is proportional to its huge market value.
Common mistakes
Assuming every company in an index has equal influence.
Judging a cap-weighted index without recognizing that a few giants dominate its behavior.
Frequently asked questions
How is it different from price weighting?
Market-cap weighting uses total company value; price weighting uses the share price number, regardless of company size.
Is cap-weighting better?
Not better, different. It concentrates exposure in the largest names, which changes the risk profile.
How do I know an index is cap-weighted?
Read the index methodology. It states how members are selected, weighted, and rebalanced.
Educational content only. Definitions describe common market usage and may vary by jurisdiction, instrument, or institution.