What Is Float in Stocks?
What is float in stocks? This is a question that many novice investors ask after hearing it come up in conversation. And it’s very common to hear in investing discussions. Therefore, it’s important to have a full understanding of this term and its meaning when it comes to the stock market. Let’s take a closer look at floating stock and define what it means.
What is Float in Stocks Exactly?
Float refers to the number of shares of a particular stock available for trading on the open market. However, it’s not the total number of shares a company offers. Float excludes closely-held shares and restricted shares.
A low float stock is one that has a lower number of shares. A high float stock is just the opposite. And the lower the float, the more volatile the stock is. This is because it can be harder to find a buyer or seller with a fewer number of shares available. As a result, you can expect lower trading volume in low float stocks.
So, what is float in stocks and how do you calculate it? Let’s dig a little deeper below.
How to Calculate Float in Stocks
Calculating float is a pretty simple process. Specifically, you subtract closely-held shares and restricted shares from the total number of outstanding shares. This gives you the float. For more context, consider the following:
- Closely-held shares are owned by employees, insiders and major shareholders. These are usually held by “controlling” stockholders.
- Restricted shares are owned by insiders and cannot be traded due to specific restrictions. For example, an employee may receive these shares as an incentive, or under the condition that they continue to work for the company for a certain number of years. These are usually issued to executives, directors and affiliates.
- Outstanding shares are the portion of the company’s stock that is currently held by all of its shareholders. This includes institutional investors and restricted shares.
Let’s say a company has 100 million outstanding shares. In addition, 70 million of those shares are held by majority shareholders and large institutions. Another nine million is held by upper management and various insiders. Lastly, the company’s employee stock ownership plan (ESOP) has four million shares. This means the floating stock sits at 17 million shares. That’s 17% of the total outstanding shares. And this is important to know because it tells investors how many shares are actually available to the public to buy and sell. Over time, the float will change if and when new shares are issued or bought back.
Learn More About Investment Research
There is a new generation of investors entering the market. And it’s important to expand your financial literacy. As a result, you will be more prepared to make better investment decisions. The better your research and analytics, the better chance you will have to enhance your portfolio.
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So, what is float in stocks to you now? You no longer have to ask this question. In fact, you know how to calculate float and utilize it in your investment strategy. Nevertheless, always be sure to do your due diligence before many any stock decisions. Your portfolio will thank you later.