Floating stock refers to the number of a company’s shares that are available to be traded in the open market.
Learn the nuances of what floating stock is, how to calculate a company’s stock float, and why it matters for individual investors.
Definition and Examples of Floating Stock
Floating stock is the number of a company’s outstanding shares that are available for trading. The number is equal to the total outstanding shares minus any restricted shares and closely held shares owned by company insiders. Knowing the number of floating shares provides an indication of the stock’s volatility and liquidity.
For example, if only 10% or 20% of the outstanding shares are available to trade, the company’s shares might be said to have a low float. This low float might indicate that it could be difficult to find buyers and sellers for shares in some cases.
- Alternate name: Stock float
How Floating Stock Works
The level of a company’s floating stock can be important to investors because it can indicate what percentage of the total shares outstanding are owned by company insiders, such as company officers and directors.
While not part of the float calculation, investors should consider the percentage of the shares owned by large institutional investors, such as major pension funds, mutual funds, and others.
A company with a low percentage of floating stock as compared to its total shares outstanding could indicate that this could be a difficult stock to buy and sell. There may be periods of low liquidity compared to stocks with a high level of float. And when there aren’t many shares available, buying and selling those that remain could increase the stock’s volatility. For this reason, many large institutional investors may choose to trade in shares of companies with a large float.
An example of a widely traded stock with a large float is Apple (ticker AAPL). In June 2021, Apple’s float percentage was 99.9% of the total shares outstanding. Ownership by corporate insiders was 0.07% of 16.53 billion shares.
Stock splits can have a significant effect on a company’s stock float. For example, a 2-for-1 stock split (in which one share splits into two) would increase the number of floating shares. A reverse stock split that gives you one share for every two you own would reduce the number of floating shares. While the number of floating shares would change, the percentage of floating shares would not.
Floating Stock vs. Shares Outstanding
Shares outstanding refers to all shares of a company’s stock held by shareholders—this includes company insiders, institutional investors, and the general investing public. Floating stock is the total of outstanding shares minus shares that individuals and corporations closely associated with the company hold.
Market capitalization is the product of a company’s outstanding shares times the share price of the stock. Market cap changes continually. Another version of market cap is “free-float market cap,” which is the product of floating shares multiplied by the market price per share. This method is used by major stock indexes like the S&P 500 and the Dow Jones Industrial Average.
A low float percentage can impact a company’s market cap and, in some cases, which market benchmarks include its stock.
What Stock Float Means for Individual Investors
For most individual investors, a company’s stock float will not have much meaning. This is especially true if the investor does all or most of their investing using pooled investment vehicles (such as mutual funds and ETFs) that invest in multiple stock holdings.
Stock float will also not have much impact on individual investors who tend to buy and hold shares of stock for a long period of time.
The level of a stock’s float percentage could have an impact on investors who trade in and out of a stock frequently, though. For stocks with a low float percentage, investors could run into liquidity issues when trying to buy or sell. This could result in a larger bid-ask spread, meaning they might have to sell shares at a lower price and buy at a higher price. In extreme cases, this could significantly impact an investor’s profit.
On the other hand, some investors like to see stocks with a relatively low float, as this is an indicator that company insiders like the stock’s prospects for the future.
However, it’s important to understand that the price of stocks with low float can be significantly impacted by trades made by investors holding these shares.
- Floating stock can be an indicator of a stock’s liquidity. Stocks with a low float percentage can be less liquid than stocks with a higher float percentage.
- The level of stock float will not impact most individual investors unless they want to frequently trade a low-float stock.
- The level of floating shares can impact the stock’s free-float market cap. This in turn impacts the market indexes—and could impact which market indexes the stock is included in.
Frequently Asked Questions (FAQs)
What is a low float stock?
Low float stocks represent companies with few available shares compared to overall outstanding shares. This usually indicates that a high percentage of the outstanding shares are held by company insiders.
What does “low float” stock mean?
Low float could indicate that a stock could be subject to liquidity issues, meaning you may have a hard time buying or selling it at certain times. Low float means you may see volatile price fluctuation on high-volume trading days, too. Over time, low float should not have a great deal of impact on most individual investors, except perhaps those who engage in frequent trading.
How do you find a stock’s float?
You can find this information from a company’s public filings, various stock websites that specialize in this information, and occasional list-style articles from investing sites. In the latter case, you can look at how the site sources its data to verify the quality of the information it provides.