What Is a Stock Float? 

A stock’s float represents the number of shares available to trade on the public market. after accounting for shares held by insiders, such as executives, directors, and major stakeholders. 

Floats are generally categorized as low, medium, or high. 

 A company’s float size significantly influences its stock price, particularly its volatility. 

Understanding Floating Stock 

• A company’s outstanding shares can be numerous, yet its floating stock—the shares readily available for trading—may be limited.   

• Consider a company with 50 million shares outstanding.  Of these, 35 million are held by large institutions, 5 million by management and insiders, and 2 million within an employee stock ownership plan (ESOP).  This leaves only 8 million shares, or 16% of the total outstanding shares, as floating stock. 

• The quantity of a company’s floating stock is dynamic and subject to change.  Issuing additional shares to raise capital, for instance, increases the floating supply.  

• Similarly, the release of previously restricted or closely held shares into the market will also expand the floating stock. 

• A share buyback program reduces the number of outstanding shares.  

• The floating shares, expressed as a percentage of the outstanding stock, will also decrease. 

Types of Stocks Floats 

Three primary categories of stock float:    \

Low Float Stocks 

Typically have fewer than 10 million shares are available to the public. This limited supply makes these stocks inherently more volatile than their highly traded counterparts. A single trade can significantly impact a stock’s price due to the scarcity of available shares. As such, low float stocks often exhibit wider bid-ask spreads. These stocks are generally suitable for traders who have a higher tolerance for risk and focus on short-term, high-reward opportunities. 

Medium Float Stocks

Medium float stocks represent a middle ground, balancing volatility and liquidity. 

While definitions can vary, these stocks often belong to companies with market caps between $2 billion and $10 billion. Alternatively, they can be described as having between 10 million and 100 million shares in the public float. Although less volatile than low float stocks, medium float stocks can still experience significant price swings due to the relatively limited number of shares available to the public. 

High Float Stocks 

High float stocks are characterized by a large percentage of a company’s shares being publicly traded. This often means more than 100 million shares, and in some cases billions of shares. Large, publicly traded companies often fall into this category. High float stocks appeal to long-term investors because of their low volatility, with individual trades having little impact on the stock price. They are also favored by institutional investors and ETF managers because of their stability and liquidity. 

Why Floating Stock Is Important? 

• Float shares play a crucial role for investors, primarily as an indicator of a company’s stock liquidity.  

• A larger float generally indicates higher liquidity, as more shares are readily available for trading. Conversely, low float shares can present challenges when buying or selling, due to the limited number of shares in circulation.  

• Therefore, assessing a company’s float before investing is essential to gauge its potential liquidity.  

• A wide bid-ask spread is often accompanied by a lack of liquidity, which makes trading in low float shares even more complicated.  

• Investors may face difficulties in liquidating their holdings in companies with a small float. 

How To Invest Using a Stock Float? 

How to use a stock float when investing?

• Understanding a stock’s float is crucial for long-term investors 

• provides insights into a stock’s liquidity over time. 

• Investors generally seek price stability along with gradual appreciation, in line with a less frequent approach to entering and exiting positions.  

• Stocks with a high float are often preferred for investment purposes, as they are less susceptible to the impact of individual trades. 

•  Dollar-cost averaging can smooth out volatility arising from news events that affect a stock’s float. For example, a company’s announcement of a stock split or share buyback, especially around earnings season, can affect a stock’s float and investor interest. 

How to use a stock float when day trading? 

• For day traders, especially those targeting the volatile landscape of low-float stocks, understanding a company’s float is crucial. These stocks are often favored for their potential for rapid price swings. 

• To effectively capitalize on a stock’s float, day traders often use specific indicators. There are two main metrics: 

• Relative Volume (RVOL): RVOL helps traders determine trading interest in a stock by comparing its current volume to its historical average.  

• High relative volume combined with a low float indicates increased volatility, creating potential day trading opportunities. 

• Reaction to News: Examining how a low-float stock has reacted to past news events, such as earnings releases or macroeconomic data, can provide valuable insights into its potential future price movement.  

• Day traders often target stocks that have shown significant volatility in response to such news. 

How to trade using low float stocks? 

• Once you have determined your trading strategy for low float stocks, follow these steps to start trading: 

• Access your trading account by logging in. 

• Select the desired assets using the “Search” function. 

• In the trade ticket, select “Buy” or “Sell” to indicate your intended position. 

• Size your position and implement appropriate risk management measures. 

• Execute and monitor your open position. 

• It is important to understand that trading leveraged derivatives requires an initial deposit that is only a fraction of the total value of the position.  

• Profits and losses are magnified and calculated based on the full trade size.  

• Gains or losses can be realized quickly and may exceed your initial deposit. 

Formula For Calculating Floating Stock 

Floating Stock Calculation 

A company’s outstanding shares do not always reflect its actual floating shares. To determine floating stock, use the following formula: 

Floating shares = outstanding shares – restricted shares – shares held by institutions – shares in employee stock ownership plans (ESOPs) 

Where: 

Restricted shares: These shares are non-transferable and cannot be traded until the lock-up period following an initial public offering (IPO). 

Employee stock ownership plan shares (ESOP): These shares are held in an employee stock ownership plan, giving employees an ownership stake in the company. 

Example: 

A company might have 5 million outstanding shares. However, if a large corporation owns 3.5 million shares, management owns 0.5 million shares, and 0.3 million shares are allocated to an employee stock option plan, the floating stock is calculated as follows: 

Floating stock = 5,000,000 – 3,500,000 – 500,000 – 300,000 = 700,000 shares 

In this example, the floating stock is only 700,000 shares. The floating stock to outstanding stock ratio is 14% (700,000 / 5,000,000 = 0.14 * 100). 

Stock Float Vs. Authorized Shares Vs. Outstanding Shares

Authorized Shares Vs. Outstanding Shares 

Aspect	Authorized Shares	Outstanding Shares
Issuance Status	Represents the potential number of shares a company may issue.	Represents the number of shares issued by the company that are currently held by shareholders.
Impact on Ownership	Do not impact existing shareholder ownership percentages.	Directly determine shareholder ownership stakes and voting power.
Financial Reporting	Disclosed in corporate filings but not on financial statements.	Reported on the balance sheet and are a key component of various financial ratios.
Flexibility	Provide a company with the flexibility to issue additional shares in the future without immediate dilution.	Reflect the current state of company ownership and the amount of capital raised to date.

Outstanding Shares Vs. Float Shares 

Aspect	Outstanding Shares	Float Shares
Definition	The total number of shares issued by a company and held by all shareholders.	The number of shares available for public trading, excluding those held by insiders and major stakeholders.
Composition	Includes shares held by insiders, company executives, institutions, and public investors.	Includes only shares held by the general public and retail investors.
Utility	Used to calculate market capitalization and other key financial metrics.	Indicates the stock’s liquidity and potential for market volatility.
Size	Typically larger than the float, as it comprises all issued shares.	Generally smaller, as it excludes significant insider and institutional holdings.
Market Influence	Reflects the company’s overall equity distribution and total market value.	Directly impacts stock price movement and trading volume.

Pros And Cons of a Stock Float

The advantages and disadvantages of a stock float can be viewed through the lens of whether a higher or lower float is more desirable. 

Advantages of a Higher Float 

• Enhanced Liquidity:  

A higher float greatly improves the liquidity of a stock. This makes it easier for investors and traders alike to buy and sell shares. 

• Reduced Volatility:  

With a larger number of shares available, a stock with a higher float typically exhibits lower volatility than a stock with a lower float. This characteristic makes it more attractive to long-term investors, as opposed to day traders who thrive on price fluctuations. 

• Increased Investor Confidence:  

A higher float can boost investor confidence. This is partly due to the fact that a larger float percentage indicates broader investor demand for the stock, making it more likely that bid-ask spreads will be met more easily. 

Disadvantages of a Higher Stock Float 

• Diluted Control: 

 A larger float can dilute an owner’s control over the company by reducing the relative value of their stake. This can complicate corporate decision-making processes. 

• Potential for Lower Demand:  

Ironically, a very large float can in some cases lead to decreased demand for a stock if the supply of shares exceeds investor demand. This can put downward pressure on the stock price. Companies may respond with share buyback programs to address this issue. 

• Increased Vulnerability to Hostile Takeovers:  

A larger pool of publicly traded shares can make a company more vulnerable to a hostile takeover. A potential acquirer could accumulate a large number of shares on the open market, potentially gaining control against the wishes of current management. 

• Greater Potential for Insider Trading:  

A higher float increases the opportunity for company insiders to engage in insider trading. Any evidence of such activity can severely damage a company’s reputation and negatively impact its stock price. 

Difference Between Floating and Non-Floating Shares 

• The float, or floating shares, represents the portion of a company’s stock that is available for public trading. 

• Non-floating shares are held by major shareholders, company insiders, or other restricted parties and are not currently available for trading on the open market.