What is a Floating Stock?

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Definition:

Floating stock refers to the total number of shares of a particular stock that are available for investors to trade without restrictions.

🤔 Understanding a floating stock

Floating stock is a measure of specific stock shares that are available for trade. The fewer number of shares a company has available, the lower its float. Stocks with a higher float are more readily available and generally easier for investors to buy. A company’s floating stock consists of its outstanding shares, minus any closely-held shares (those that company insiders hold), and restricted stock (stock that isn’t registered for public sale). A stock’s float is different from its volume, which is the number of shares that actually change hands during a certain period, rather than all of those that are available to change hands.

Example

Suppose that Corporation Y (a fictional business) had 1,000 outstanding shares of its stock. Of those, 600 are closely-held shares. They’re owned by the company’s founder and a few of its senior employees. The remaining 400 shares make up the stock’s float. These are the shares that are available for investors to buy and sell each day. Even though the stock's float is 400, that doesn’t necessarily mean that 400 shares actually change hands each day — That’s just the number available for trading. The float could change over time if the company issues more shares, or repurchases some of the outstanding shares for company insiders.

Takeaway

Floating stock is like the number of apples available at the supermarket each day…

Every day, the local supermarket stocks the shelf with apples. The number of apples they put out is the number of apples that are available for purchase that day. That’s not to say that’s the number that will always be available — The next day the store may restock the shelf, or customers may buy most of the apples available. Similarly, floating stock represents the number of shares available for trade at a particular time. The number could increase or decrease in the future.

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What is a floating stock?

Floating stock refers to the number of shares of a company’s stock that are available to trade. It doesn’t include any shares owned internally by the company’s management and other insiders.

A stock’s float is often represented as a percentage of the company’s total stock. Suppose a corporation had 500 outstanding shares. The percentage of those shares available for the public would be the total float. If individuals within the company owned 400 of the 500 shares, the company’s float would be 20%.

What is the difference between floating stock and shares outstanding?

Shares outstanding refers to the total number of a company’s shares that are held by shareholders during a certain period. Outstanding shares include all shares that a company has issued, minus treasury stock (or stock that a company has issued, and then repurchased). Finding a company’s outstanding shares is fairly simple. It’s generally reported on the balance sheet (a financial statement where companies share their assets, liabilities, and shareholder equity).

Outstanding Stock = Issued Stock - Treasury Stock

Floating stock is only one part of the outstanding shares. It’s not just the public that has access to the shares of any particular company. Often shareholders include company insiders such as employees and executives. These shares are a part of the company’s outstanding shares, but not its floating stock. Instead, they’re generally considered restricted or closely-held stock.

Floating Stock = Outstanding Shares - Restricted and Closely-Held Shares

Imagine that a large clothing manufacturer had issued a total of 1,500 shares of stock. The company repurchased 250 of those shares as treasury stock. As a result, the company now has 1,250 shares outstanding. Of those shares, 750 are held by individuals within the company. 500 shares remain as floating stock. The company’s float is 40% of its outstanding shares (500 / 1,250).

What is the difference between floating stock and volume?

Floating stock refers to the total number of shares of a company’s stock that is available to the public. It doesn’t matter how much stock actually changes hands. Even if no one actually buys or sells any stock on a particular day, the float still consists of all stock that could have changed hands.

Volume, on the other hand, specifically refers to shares that do change hands. Imagine that a company has a floating stock of 1,000 shares. That’s the number of shares available to the public. Over the span of one day, one person buys 25 shares of the stock, and another buys 150. The trading volume for that day is 175 shares. Volume refers to the total number of shares bought and sold in a day, not the number of trades that happen.

How do you find the float of a stock?

You generally can’t find this information on the website for the stock exchanges, such as the Nasdaq or the New York Stock Exchange (NYSE). For example, suppose you wanted to know the float for Amazon. You can head to the Nasdaq website to find important information such as the market capitalization (the company’s total shares multiplied by its share price), the trading volume, and the recent gains and losses. But you won’t find Amazon’s floating stock rate.

However, third-party services such as MarketWatch do report on stock float data. Using their website, you’d find that Amazon has 498.78M outstanding shares, with a public float of 423.32M (as of July 28, 2020). Therefore, Amazon has a floating stock rate of about 85%.

What is a good float for stock?

There isn’t necessarily one best float rate that investors should look for when making their buying decisions. Instead, it comes down to the priorities and investing needs of each individual.

Some people might prefer high float stocks (meaning those with a high percentage of their outstanding shares available to the public). These stocks are more liquid, meaning investors will have an easier time selling them if and when they want to.

Many day traders prefer low float stocks because of their greater volatility. Low float stocks have fewer shares available to the public. The supply is low, so when demand increases, the price goes up. Speculative investors may buy these stocks, expecting the demand to increase significantly in the near future. It’s important to note that all stock prices are reactive to supply and demand. But the reaction can be especially strong in the case of low-float stocks because the low supply makes the increased or decreased volume have a more exaggerated effect.

What does it mean if a float is higher than shares outstanding?

A company’s float is the number or percentage of its outstanding shares that are available to the public for purchase. The float is the number of outstanding shares, minus any closely-held or restricted stock. Because a company’s floated shares are a portion of its total outstanding shares, the float will always be smaller.

A company’s float cannot be greater than its outstanding shares. Floating stock can increase if the company chooses to issue more shares of stock, but the number of outstanding shares would also increase in that case.

What does low float mean?

A low float stock is one where only a small percentage of the outstanding shares are available to the public. Low float stocks have both advantages and disadvantages.

A low float can be problematic for an investor. Low float generally means low liquidity. As a result, it will be harder for an investor to get their hands on the stock when they want to. It may also be harder for an investor to sell the stock down the road and losses may accelerate as those who are trying to sell cause the price to fall steeply.

A stock where only a small portion of the shares are available to the public could be good to investors. If company insiders hold a majority of the stock, it could influence management to act more inline with the best interests of the shareholders.

Why is floating stock important?

A company’s float is important because it tells investors how much of its stock is actually available for trading. It also gives insights into such things as the stock’s liquidity (how easy it is to sell). Finally, it tells investors how much of the stock is held by company insiders. In theory, the more a company’s management owns shares of stock, the more aligned it will be with the other shareholders.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

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