Float

Loading the player...

What does 'Float' mean

Money in the banking system that is briefly counted twice due to delays in processing checks. Float is created when a bank credits a customer’s account as soon as a check is deposited. However, it takes some time for the check to be received from the payer’s bank. Until the check clears from the payer’s bank, the amount of the check appears in the accounts of both the recipient’s and payer’s banks.

Float may also refer to the total number of shares available for trading. Float is calculated by subtracting closely-held shares from the total number of outstanding shares.

BREAKING DOWN 'Float'

Since float is essentially double-counted money, it can distort the measurement of a nation’s money supply by briefly inflating the amount of money in the banking system. This can complicate monetary policy implementation.

For instance, the Federal Reserve – which processes one-third of all checks in the U.S. – has observed that although the amount of float fluctuates randomly, there are definite weekly and seasonal trends. For example, float usually increases on a Tuesday due to a backlog of checks over the weekend, as well as during the months of December and January because of higher check volume during the holiday season. The Federal Reserve uses these trends to forecast float levels, which are then used in the actual day-to-day implementation of monetary policy.

The Federal Reserve also defines two types of float. Holdover float is caused by delays at the processing institution, typically due to weekend and seasonal backlog. Transportation float occurs due to inclement weather and air traffic delays, and is therefore highest in the winter months.

Technological advances over the years have spurred the adoption of measures that substantially speed up payment and hence reduce float. These include the widespread use of electronic payments, the direct deposit of employee paychecks by companies, and the scanning and electronic presentation of checks (instead of their physical transfer). As a result, float in the U.S. has declined from a record daily average of $6.6 billion in the late 1970s – when it spiked due to high inflation and high interest rates – to only $774 million in 2000. The steady decline in the number of checks written each year, combined with the rapid adoption of innovative and convenient payment services, may make float a thing of the past.

RELATED TERMS
  1. Availability Float

    The time period between when a deposit is made and when the funds ...
  2. Federal Reserve Float

    Refers to the over-estimation of the country's money supply due ...
  3. Floating Stock

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

    The period of time between when a bank customer writes a check ...
  5. Float Time

    The amount of time between when an individual writes and submits ...
  6. Book Balance

    Funds on deposit prior to any adjustment for check clearing, ...
Related Articles
  1. Investing

    Float

    Float is money in the banking system that is briefly counted twice due to delays in processing checks.
  2. Investing

    Calculating Floating Stock

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

    Floating Stock

    Floating stock is the number of a company’s shares that are available for the public to buy and sell.
  4. 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 ...
  5. Trading

    Understanding the Floating Exchange Rate

    Floating exchange rate is the exchange rate between two currencies at any given time.
  6. 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?
  7. Investing

    The Basics Of Outstanding Shares And The Float

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

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  10. Investing

    Interest Rate Swaps Explained

    Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows.
RELATED FAQS
  1. What is the difference between holdover float and transportation float?

    Find out about float, which may become a thing of the past due to the steady decline of check writing and new services in ... Read Answer >>
  2. What months of the year typically have the highest float?

    Learn more about how float occurs within the United States and how it is monitored. Find out why float frequently happens ... Read Answer >>
  3. Why does float usually increase at the beginning of the week?

    Find out more about float and how checking float is created in the American banking system. Learn more about why the Federal ... Read Answer >>
  4. How does float affect the nation's money supply?

    Learn how float affects the appearance of the nation's money supply, and receive a brief lesson on how the U.S. government ... Read Answer >>
  5. In what ways has technology helped to reduce float?

    Learn more about the impact of float on the U.S. monetary system and how technology has changed the amount of float as measured ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center