Free-Float Methodology

AAA

DEFINITION of 'Free-Float Methodology'

A method by which the market capitalization of an index's underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity's price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments.

Calculated as:

Free-Float Methodology


INVESTOPEDIA EXPLAINS 'Free-Float Methodology'

The free-float method is seen as a better way of calculating market capitalization because it provides a more accurate reflection of market movements. When using a free-float methodology, the resulting market capitalization is smaller than what would result from a full-market capitalization method.

Free-float methodology has been adopted by most of the world's major indexes, including the Dow Jones Industrial Average and the S&P 500.

.

RELATED TERMS
  1. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  2. Price-Weighted Index

    A stock index in which each stock influences the index in proportion ...
  3. Capitalization-Weighted Index

    A type of market index whose individual components are weighted ...
  4. Weighted Average Market Capitalization

    A stock market index weighted by the market capitalization of ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  6. Dow Jones Industrial Average - ...

    The Dow Jones Industrial Average is a price-weighted average ...
Related Articles
  1. Mutual Funds & ETFs

    Which Mutual Fund Market Cap Suits You?

  2. Insurance

    Market Capitalization Defined

  3. Forex Education

    The New World Of Emerging Market Currencies

  4. Economics

    The ABCs Of Stock Indexes

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center