Floating Stock

Floating Stock: Definition and Why It Matters

Floating stock (or “float”) is the number of a company’s shares available for public trading on the open market. It excludes restricted shares and closely held shares owned by insiders, employees, or large shareholders.

Formula:
* Float = Outstanding shares − Restricted shares − Closely held shares

Restricted shares are temporarily untradeable (for example, during an IPO lock-up). Closely held shares are those owned by insiders, founders, or institutions that typically don’t trade frequently.

How Float Affects a Stock

• Liquidity: Larger float generally means greater liquidity, making it easier to buy or sell without moving the price much.
• Volatility: Smaller float often produces higher volatility and larger price swings because fewer shares are available to absorb buying or selling pressure.
• Bid-ask spreads: Low-float stocks tend to have wider spreads and lower trading volume.
• Institutional trading: Large investors usually prefer stocks with bigger floats so their sizable trades won’t unduly affect the market price.

What Changes Float

Float can increase or decrease over time due to:
* New share issuance (increases float)
* Restricted shares becoming unrestricted (increases float)
* Share buybacks (decrease outstanding shares and may reduce float)
* Stock splits (increase number of shares, increasing float)
* Reverse stock splits (decrease number of shares, decreasing float)

Special Considerations

• Trading activity in the secondary market (buying, selling, shorting) does not change the float—these trades only redistribute existing shares.
• The creation and trading of options on a stock do not affect float.
• Institutional ownership levels can change and affect how many shares are effectively available to the public, but those holdings themselves do not alter the official float until shares are sold or restrictions change.

Example

Using recent data as an illustration:
* General Electric had about 1.088 billion shares outstanding.
* Insiders held roughly 0.20% and institutions held about 75.8%, totaling ~76% (≈830 million shares) likely not available to the public.
* Estimated float ≈ 1.088 billion − 830 million ≈ 260 million shares.

Institutional ownership can rise or fall over time; declining institutional ownership plus a falling stock price may signal institutions are selling, while increasing ownership may indicate accumulation.

Floating vs. Non-Floating Shares

• Floating shares: Available for public trading.
• Non-floating shares: Held by insiders, major shareholders, or subject to restrictions and not presently tradable.

Stock Flotation vs. Float Shrink

• Stock flotation: When a company issues new shares to the public to raise capital (increases float).
• Float shrink: Actions such as share buybacks that reduce the number of shares available to trade.

Is Float Good or Bad?

Float is neither inherently good nor bad. Its importance depends on investor goals:
* Traders and short-term investors may prefer low-float stocks for higher volatility and opportunity (but with greater risk and execution difficulty).
* Long-term investors and institutions often prefer higher-float stocks for liquidity and lower price impact.

Key Takeaways

• Float = outstanding shares − restricted − closely held shares.
• Low float typically means higher volatility, wider spreads, and lower liquidity.
• Float changes with share issuance, buybacks, restriction expirations, and stock (reverse) splits.
• Secondary-market trading and options do not change a company’s float.
• Consider float when assessing liquidity and the likely market impact of trading a position.