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

    The Basics Of Outstanding Shares And ...

  2. Introduction To Institutional Investing ...
    Fundamental Analysis

    Introduction To Institutional Investing ...

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

    How Restricted Stock And RSUs Are Taxed ...

  4. Understanding Stock Splits
    Investing Basics

    Understanding Stock Splits

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center