A:

The term "float" refers to the regular shares that a company has issued to the public that are available for investors to trade. This figure is derived by taking a company's outstanding shares and subtracting from it any restricted stock. (Restricted stock is stock that is under some sort of sales restriction: for example, stock that is held by insiders and cannot be traded because they are in a lock-up period following an initial public offering.)

A company's float is an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public. The company is not responsible for how shares within the float are traded by the public - this is a function of the secondary market. Therefore, shares that are purchased, sold or even shorted by investors do not affect the float because these actions do not represent a change in the number of shares available for trade: they simply represent a redistribution of shares. Similarly, the creation and trading of options on a stock do not affect the float.

Still don't quite understand what a float is? Here's an example:

Say the TSJ Sports Conglomerate has 10 million shares in total, but 3 million shares are held by insiders who acquired these shares through some type of share distribution plan. Because the employees of TSJ are not allowed to trade these stocks for a certain period of time, they are considered to be restricted; therefore, the company's float would be 7 million (10 million - 3 million = 7 million). In other words, only 7 million shares are available for trade.

It should also be noted that there is an inverse correlation between the size of a company's float and the volatility of the stock's price. This makes sense when you think about it: the greater the number of shares available for trade, the less volatility the stock will show because the harder it will be for a smaller number of shares to move the price.

To learn more about this subject, check out The Basics Of Outstanding Shares And The Float.

RELATED FAQS
  1. How do I determine a company's floating stock?

    Find out more about floating stock, outstanding shares and restricted stock, and learn how to calculate the amount of a company's ... Read Answer >>
  2. What is the difference between shares outstanding and floating stock?

    Learn about shares outstanding, floating stock, how to calculate a company's floating stock and the difference between shares ... Read Answer >>
  3. What is the difference between a company's outstanding shares and its float?

    Understanding share counts, including outstanding shares relative to float, is an integral part of determining whether or ... Read Answer >>
  4. How do corporate actions affect floating stock?

    Learn what floating stock is, and find out about some of the actions a company may take to affect the amount of the company's ... Read Answer >>
  5. What does floating stock tell traders about a particular stock?

    Learn about what floating stock tells a trader about a particular stock. One commonality of the biggest winners in stock ... Read Answer >>
  6. What is a treasury stock?

    Every company has an authorized amount of stock it can issue legally. Of this amount, the total number of shares owned by ... Read Answer >>
Related Articles
  1. Investing

    Floating Stock

    Floating stock is the number of a company’s shares that are available for the public to buy and sell.
  2. Investing

    Calculating Floating Stock

    Floating stock is the number of shares a company has available for trade in the open market.
  3. Markets

    Types Of Shares: Authorized, Outstanding, Float And Restricted Shares

    A company’s financial statements may refer to multiple types of stock, including authorized, outstanding, float and restricted shares. If a company issues more shares, its outstanding shares ...
  4. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  5. Investing

    What's A Company’s Worth, And Who Determines Its Stock Price?

    A company’s worth is the same as its market capitalization. Market capitalization is stock price multiplied by number of outstanding shares.
  6. Investing

    Getting Acquainted With Treasury Stock

    When publicly traded businesses decided to buy back some of their outstanding shares, it becomes treasury stock. Treasury stock confers no voting rights or dividends, but helps boost shareholder ...
  7. Investing

    What are Issued Shares?

    Issued shares are the amount of authorized stocks a company’s shareholders buy and own. The annual report shows the number of outstanding shares.
  8. ETFs & Mutual Funds

    FLOT: iShares Floating Rate Bond ETF

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  9. ETFs & Mutual Funds

    Is it Time to Buy Floating Rate Bonds?

    The Fed’s awaited interest rate hike could finally be at hand. Are floating rate bonds the way to go?
  10. Trading

    Understanding the Floating Exchange Rate

    Floating exchange rate is the exchange rate between two currencies at any given time.
RELATED TERMS
  1. Floating Stock

    The number of shares available for trading of a particular stock. ...
  2. Float

    Money in the banking system that is briefly counted twice due ...
  3. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  4. Availability Float

    The time period between when a deposit is made and when the funds ...
  5. Average Daily Float

    1. The dollar amount of checks or other negotiable instruments ...
  6. Floating Rate Fund

    A mutual fund that invests in financial instruments with a variable ...
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center