What Is Floating Stock?
Floating stock (or “float”) is the number of a company’s shares that are available for public trading on the secondary market. Float is calculated as:
Float = Total shares outstanding − (closely held shares + restricted shares)
Closely held shares include insider holdings, shares owned by large institutions, and shares in employee benefit plans. Restricted shares are those under temporary trading restrictions (for example, IPO lock-up shares). Float matters because it determines how many shares are actually available to buy and sell—and that availability strongly influences liquidity, price volatility, and trading behaviour (Investopedia).
Key takeaways
– Float measures shares available to public investors; it excludes closely held and restricted shares.
– Low-float stocks are typically more volatile and have wider bid-ask spreads; high-float stocks tend to be more liquid and less volatile.
– Float changes over time via new share issues, share buybacks, restricted shares becoming tradable, stock splits, or reverse splits.
– Investors should check float alongside average daily volume, bid-ask spreads, and institutional ownership to assess tradeability and risk.
Understanding floating stock
– Total shares outstanding: every share the company has issued.
– Closely held shares: shares held by insiders, major shareholders, and some institutional holders that are unlikely to trade frequently.
– Restricted shares: shares that cannot be sold immediately (e.g., lock-up period after an IPO).
– Float expresses the subset of outstanding shares that are freely tradable by the general public.
How float can change
– Issuing new shares (e.g., secondary offering) increases float.
– Restricted or locked-up shares becoming unrestricted increases float.
– Share buybacks reduce outstanding shares and therefore typically reduce float.
– Stock splits multiply number of shares (increasing float); reverse splits reduce the number of shares (decreasing float).
Why floating stock is important
– Liquidity: Float helps determine how easily you can enter or exit a position. Stocks with small floats often have lower liquidity.
– Volatility: Fewer tradable shares means the same buy/sell pressure moves price more, so low-float stocks can be much more volatile.
– Bid-ask spreads: Low-float stocks often have wider spreads, increasing trading cost.
– Institutional participation: Large institutions prefer stocks with larger floats so their large trades won’t move the market as much. High institutional ownership can reduce float available to retail investors.
– Trading strategies: Float constrains what kinds of strategies are practical (e.g., large long-term positions in low-float stocks are difficult).
Special considerations and risks
– Price manipulation and squeezes: Thin floats are more susceptible to pump-and-dump schemes and short squeezes because a relatively small amount of buying or short-covering can move price sharply.
– Order execution risk: Low float → wide spreads + variable fills. Limit orders are usually safer than market orders.
– Options vs. float: Trading options or creating options positions does not change the company’s float—the float is only affected when the company issues or cancels shares in the primary market.
– Institutional ownership isn’t permanent: changes in institutional holdings can signal accumulation or dumping; track trends rather than a single snapshot.
Practical examples
– Simple example: Company A has 50 million shares outstanding. Large institutions own 35 million, insiders and management own 5 million, and the ESOP holds 2 million. Closely held/restricted = 35 + 5 + 2 = 42 million. Float = 50 million − 42 million = 8 million shares (16% of outstanding).
– Real-world snapshot: As of September 2023, General Electric (GE) had about 1.088 billion shares outstanding. Institutional + insider holdings accounted for roughly 76% (≈830 million), leaving an approximate float of 260 million shares (Macrotrends; Yahoo Finance).
Is floating stock good or bad?
Float itself is neither good nor bad; it is a characteristic that affects trading dynamics and investor suitability:
– Advantages of large float: better liquidity, easier execution for big positions, generally lower volatility—suitable for institutional and long-term investors.
– Advantages of low float: potential for strong short-term moves (up or down), which can reward active traders or speculators—but with higher risk.
Choose securities whose float aligns with your investment horizon, position size, and risk tolerance.
What is stock flotation?
Stock flotation refers to a company issuing shares to the public (for example, through an IPO or a secondary offering). Flotation raises capital and increases shares available to the public, thus increasing float. The opposite—reducing float—occurs via share buybacks or other means that retire shares.
Difference between floating and non-floating shares
– Floating shares: freely tradable by the public on the secondary market.
– Non-floating shares: shares held by insiders, major shareholders, and restricted shares not currently tradable. These shares are part of outstanding shares, but not part of the float.
Practical steps for investors: how to find, evaluate, and use float
1. Find the numbers
– Check financial sites for float and shares outstanding (e.g., Yahoo Finance, MarketWatch, Seeking Alpha). Many aggregator pages list “float” directly.
– Use company filings: the 10-K and 10-Q, and proxy statements disclose shares outstanding and insider holdings (SEC EDGAR).
– Check major-holders pages to estimate closely held shares (institutional and insider ownership figures). Example sources: Yahoo Finance Major Holders, company investor relations, and Macrotrends for historical outstanding shares.
2. Calculate float (if not provided)
– Float = Shares outstanding − (insider shares + restricted shares + shares in closely-held plans)
– Percent float = Float / Shares outstanding × 100%
3. Interpret float with other liquidity metrics
– Average Daily Volume (ADV): a stock with low float but high ADV may still be tradeable; low float and low ADV is particularly thin.
– Bid-ask spread: wide spreads signal execution cost and poor liquidity.
– Market capitalization and recent institutional ownership trends: heavy institutional ownership reduces float available to retail and can change over time.
4. Use float to size positions and manage risk (practical rules)
– Position sizing: for low-float names, keep positions small relative to float—large orders can move price and increase slippage. A simple rule of thumb: avoid acquiring a position that exceeds a small single-digit percentage of the float (exact percentage depends on trader tolerance).
– Entry/exit method: use limit orders rather than market orders; consider reducing size when spreads are wide.
– Stops and volatility: expect larger intraday swings in low-float stocks—use wider stops or smaller size to manage risk.
– Time horizon: low-float stocks are often more suitable for short-term traders than for buy-and-hold investors who need to scale in and out.
5. Trading strategies by float profile
– Low-float stocks (e.g., very small float < ~10–20M): often targeted by momentum traders and day traders; strategies include quick scalp trades, tight timeframes, and strict risk controls. Be aware of manipulation risk and news-driven gaps.
– Medium/high-float stocks: easier for longer-term investors and institutions; suitable for larger positions with lower execution risk.
6. Monitor changes in float and ownership
– Track share offerings, lock-up expirations, buybacks, or large institutional buying/selling—any of these can change float dynamics and liquidity going forward.
– A rising float after an offering can dampen short-term price pressure; a shrinking float via buybacks can increase scarcity and potentially increase volatility.
Practical steps for companies (brief)
– If the goal is to improve liquidity, companies may increase float by issuing shares or encourage wider distribution among investors.
– To increase share scarcity (and potentially EPS), companies may buy back shares, reducing float and outstanding shares.
– Consider investor relations and communication: explain share structure and lock-up schedules so investors understand float dynamics.
The bottom line
Float is a key metric that describes how many shares of a company are available to the public for trading. It strongly influences liquidity, volatility, and how easily investors—particularly large ones—can move into or out of positions. Investors should not treat float in isolation; combine float with average daily volume, bid-ask spread, institutional ownership trends, and overall market context. Use float to guide position sizing, execution methods, and strategy selection. For detailed figures, check reputable data aggregators and company filings (SEC EDGAR).
Sources
– Investopedia: Definition and discussion of floating stock.
– Macrotrends: General Electric shares outstanding data (used for example).
– Yahoo Finance: Major holders (institutional & insider ownership) for GE and other stocks.
– U.S. Securities and Exchange Commission (SEC EDGAR): company filings for authoritative share counts and disclosures.