Float stock refers to the number of shares a company has available for trading by the general public. It excludes shares held by insiders, major shareholders, and restricted stock, making it an essential figure for investors assessing a stock’s liquidity and potential volatility.
For example, imagine a company with 1 million shares in total, but 300,000 are held by its founders and another 200,000 by institutional investors. The float stock would be the remaining 500,000 shares, as these are the only shares available for public trading.
Floating Stock
Float stock represents the shares of a company that are in the hands of public investors and available for trading, not including shares held by company insiders, large stakeholders, or under restriction, crucial for understanding market liquidity and stock price movements.
Imagine a company, XYZ Corp, with 2 million total shares. If 300,000 shares are owned by company executives (closely held) and 100,000 are restricted due to regulatory reasons, the floating stock is 1.6 million shares (2 million minus 400,000).
These 1.6 million shares are what investors can freely trade on the stock market. The size of the floating stock can greatly influence a stock’s liquidity and volatility; fewer available shares often lead to higher price fluctuations. Understanding floating stock is crucial for investors assessing a company’s market dynamics.
How To Calculate Float Stock?
Floating stock can be calculated by deducting restricted and closely held shares from the total outstanding shares, revealing the number available for open-market trading.
Here’s an example: Imagine Company XYZ has 1 million outstanding shares. Out of these:
- 200,000 shares are held by company insiders and are considered closely held.
- 50,000 shares are restricted and cannot be traded in the open market due to regulatory or contractual restrictions.
To calculate Company XYZ’s floating stock:
Floating Stock = 1,000,000 (Total Outstanding Shares) – (200,000 (Closely Held) + 50,000 (Restricted)) = 750,000 shares
So, Company XYZ has 750,000 shares available for trading in the open market, which is its floating stock. These are the shares that can be bought and sold by the general public on stock exchanges.
Outstanding Shares Vs Floating Shares
The main difference between outstanding shares and floating stock is that outstanding shares include all issued shares of a company while floating shares are those available for public trading, excluding shares held by insiders, governments, or other restricted parties.
| Aspect | Outstanding Shares | Floating Shares |
| Definition | Total number of shares a company has issued, representing the full ownership of the company. | Number of shares available for public trading, excluding restricted and closely held shares. |
| Inclusion | Includes all company-owned shares. | Excludes closely-held and restricted shares. |
| Investors’ View | Represents all shares issued. | Reflects shares actively traded in the open market. |
| Impact on Trading | No direct impact on stock liquidity. | Determines stock liquidity and potential price volatility. |
| Regulatory Role | Important for corporate governance. | Relevant for investors and traders to assess market dynamics. |
| Calculation | Fixed number, doesn’t change often. | Can change due to insider selling, new issuances, or share buybacks. |
To understand the topic and get more information, please read the related stock market articles below.
| Floating Stock |
| Authorized Share Capital |
| GTT order |
| Stock SIP Vs. Mutual Fund SIP |
| What is PE Ratio |
| What is a Dividend Payout Ratio? |
| Load Vs No load Mutual Funds |
Floating Stock – Quick Summary
- Floating stock is the shares available for trading. Low float means few shares. Calculate it by subtracting closely held and restricted shares from total outstanding shares.
- Deduct closely held and restricted shares from total outstanding shares to find floating stock. It’s what investors can trade on the market.
- Shares outstanding include all investor-owned shares, while float excludes closely-held ones. Float represents actively tradable shares, impacting liquidity and volatility.
Float Stock Meaning – FAQs
1. What is the meaning of floating stock?
Floating stock refers to shares of a company available for public trading, excluding those held by insiders, affiliates, or major shareholders.
2. What is the floating stock rate?
The floating stock rate indicates the percentage of total shares outstanding that are available for public trading, highlighting market liquidity.
3. What is the disadvantage of floating shares?
A disadvantage of floating shares is potential volatility; a higher float can lead to greater price fluctuations due to increased supply and trading volume.
4. What is the difference between float and outstanding shares?
The difference is that outstanding shares include all issued shares, while float shares are those available for public trading, excluding restricted or insider-held shares.
5. What is considered a high float stock?
A high float stock has a large number of shares available for public trading, typically indicating high liquidity but potentially lower volatility compared to low float stocks.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
