Floating Stock

AAA

DEFINITION of 'Floating Stock'

The number of shares available for trading of a particular stock. Floating stock is calculated by subtracting closely-held shares and restricted stock from a firm’s total outstanding shares. Closely-held shares are those owned by insiders, major shareholders and employees, while restricted stock refers to insider shares that cannot be traded because of a temporary restriction such as the lock-up period after an initial public offering. A stock with a small float will generally be more volatile than a stock with a large float, apart from having limited liquidity and wider bid-ask spread. Because of these issues, institutional investors seldom invest in low-float stocks. Also known as share float or simply “float”.

INVESTOPEDIA EXPLAINS 'Floating Stock'

A company may have a large number of shares outstanding, but a fairly limited float. For example, let’s say ABC Co. has 50 million shares outstanding, with major stakeholders as follows – Institutions 25 million, XYZ Company 10 million, Management and Insiders 5 million, Employee Stock Ownership Plan (ESOP) 2 million. Floating stock is therefore only 8 million shares (i.e. 50 million – 42 million), or 16% of outstanding shares.

Low float is typically an impediment to active trading. This lack of trading activity makes it difficult to exit long positions in stocks that have limited float.

The amount of a company’s floating stock will typically go up over time. This occurs because companies may sell shares in a secondary offering to expand the business or make an acquisition, or periodically when employees exercise their stock options.

Other corporate actions can also have a significant impact on floating shares. A share buyback, for example, decreases the number of outstanding shares, so floating shares as a percentage of outstanding stock will go down. Similarly, while a share split will increase floating shares, which may provide a temporary boost to the stock, a reverse split decreases float and makes it harder to borrow, which is a deterrent to short-sellers.

VIDEO

RELATED TERMS
  1. Float Shrink

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

    Money in the banking system that is briefly counted twice due ...
  3. Restricted Stock

    Insider holdings that are under some other kind of sales restriction. ...
  4. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  5. Market Value Of Equity

    The total dollar market value of all of a company's outstanding ...
  6. Common Stock Equivalent

    Securities such as stock options, warrants, preferred bonds, ...
Related Articles
  1. Introduction To Institutional Investing ...
    Fundamental Analysis

    Introduction To Institutional Investing ...

  2. How Restricted Stock And RSUs Are Taxed ...
    Options & Futures

    How Restricted Stock And RSUs Are Taxed ...

  3. The Basics Of Outstanding Shares And ...
    Investing Basics

    The Basics Of Outstanding Shares And ...

  4. Understanding Stock Splits
    Investing Basics

    Understanding Stock Splits

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center