What Is Floating Stock?
Floating stock represents a company's shares that are currently available for trading. Simply put, it is the number of shares that investors can trade in an open market. Investors can calculate floating stock (also known as share float) by taking shares outstanding and then subtracting both restricted shares and closely held shares.
By determining a figure for floating shares, investors can establish how many shares are actually available to the public for trade. The floating stock, which is also known as the "share float" or "float," is of interest to investors, as it can provide valuable insight into a company.
Calculating Floating Stock
Investors can calculate a company's floating stock by first determining the number of shares outstanding, which includes all shares issued by a company. Next, they need to find out the number of closely held shares, meaning units of stock owned by those who are directly linked to either the company in question or its management.
Investors interested in determining a company's floating stock must ascertain how many restricted shares, which are paid out to a firm's employees as compensation, that business has. Once they have these figures, investors can simply subtract the closely held shares and restricted shares from outstanding shares to calculate floating stock.
Floating Stock Implications
By examining a company's floating stock, potential buyers can gauge interest in a business's shares. If a large fraction of a firm's stock is floating, it means that many investors are interested in that company's shares. Alternatively, if a low fraction of shares outstanding are floating, few investors are interested.
Investors can also gain insight into the liquidity of a firm's securities through its floating stock. If few shares are available, it means there is less liquidity for those interested in trading them. This could prove problematic for interested investors. Lower liquidity could result in problems like higher volatility, reduced opportunities for shorting, and higher spreads.
Investors should keep in mind that if a company has a low number of floating shares, it may issue new units of stock in order to increase the float. Issuing new shares would decrease the value of the existing shares, an action known as stock dilution.
Floating stock represents the number of shares that are available for trading. To determine this measure, investors can simply take the total number of outstanding shares and then subtract the amount of closely held shares and restricted shares.
Investors can benefit greatly from doing their own research, because looking into a company's float may provide only a surface level analysis. If a business with a low float wanted to compensate for this challenge, it could simply issue more shares, which would improve its float but detract from shareholder value.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…