FLOAT as it pertains to stocks refers to the number of shares available for trading by the public investor. It is the subset of a company's outstanding shares that are not held by insiders, major shareholders, or other entities with restricted ownership12. Here's a detailed explanation:
- Definition: FLOAT is the portion of a company's shares that are publicly traded. It represents the number of shares available for investors to buy and sell in the market3.
- Calculation: FLOAT is calculated by subtracting closely-held shares and restricted stock from a firm’s total outstanding shares1. Closely-held shares are those owned by insiders, major shareholders, and employees, while restricted stock refers to insider shares that cannot be traded due to temporary restrictions, such as the lock-up period after an initial public offering (IPO)1.
- Impact on Volatility: Stocks with smaller floats tend to be more volatile than those with larger floats because a smaller number of shares available for trading can lead to larger spreads and often lower volume12.
- Investor Consideration: The amount of a company’s floating stock is an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public2. The larger the float, the more shares are available for trading, which can lead to higher liquidity and potentially less volatility.
- Regulations: There are regulations that govern the public float, such as the requirement for a company to be incorporated and have published or filed audit accounts for a certain period before offering public floats5.
- Market Capitalization: In the context of stock markets, the public float or free float represents the portion of shares of a corporation that are in the hands of public investors5. This number is sometimes used to calculate market capitalization because it provides a more accurate reflection of what public investors consider the company to be worth5.
In summary, FLOAT is a critical metric for investors to understand when evaluating a stock. It indicates the number of shares available for trading, which can impact the stock's liquidity and volatility.