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

Loading the player...
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 FAQS
  1. How do I determine a company's floating stock?

    Floating stock is the number of shares of a company that is available for traders and investors to buy and sell. To determine ... Read Full Answer >>
  2. How do corporate actions affect floating stock?

    Corporate actions, defined as a company's actions that affect the amount of outstanding company stock shares, can either ... Read Full Answer >>
  3. What is the difference between shares outstanding and floating stock?

    Shares outstanding and floating stock are different measures of the shares of a particular stock. Shares outstanding is the ... Read Full Answer >>
  4. Why would I need to know how many outstanding shares the shareholders have?

    There are a few different contexts in which the total number of outstanding shares are considered important. Shares work ... Read Full Answer >>
  5. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  6. What constitutes a secondary market?

    A secondary market covers the trading of any good, commodity, security or asset after it has been issued or created. Although ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Basics Of Outstanding Shares And The Float

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

    Introduction To Institutional Investing

    Investopedia explains: Learn about institutional investing and all of the major players in this field.
  3. Options & Futures

    How Restricted Stock And RSUs Are Taxed

    This form of executive compensation limits how these stocks can be sold. Find out more here.
  4. Investing Basics

    Understanding Stock Splits

    We explain what they are, the thinking behind them as well as their results.
  5. Insurance

    Market Capitalization Defined

    Find out the differences between mega-, large-, mid- and small-cap stocks and how each suits different investing styles.
  6. Fundamental Analysis

    Institutional Investors And Fundamentals: What's The Link?

    Big-money sponsorship might make a company look good, but it's not always a reliable gauge of stock quality.
  7. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  8. Options & Futures

    Keeping An Eye On The Activities Of Insiders And Institutions

    These transactions reveal much about a stock. We go over what to consider and where to find it.
  9. Economics

    Do Transport Stocks Signal a U.S. Selloff?

    The Dow Jones Transportation Average index has underperformed the broader DJ Industrials Average, leading some market watchers to speculate a selloff.
  10. Investing Basics

    Explaining Counterparty Risk

    Counterparty risk is the risk that the other party in an agreement will default, or fail to live up to its contractual obligation.

You May Also Like

Hot Definitions
  1. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  2. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  3. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  4. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  5. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
  6. Himalayan Option

    An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!