For example, if only 10% or 20% of the outstanding shares are available to trade, the company’s shares might be said to have a low float. This low float might indicate that it could be difficult to find buyers and sellers for shares in some cases.
Alternate name: Stock float
How Floating Stock Works
The level of a company’s floating stock can be important to investors because it can indicate what percentage of the total shares outstanding are owned by company insiders, such as company officers and directors. A company with a low percentage of floating stock as compared to its total shares outstanding could indicate that this could be a difficult stock to buy and sell. There may be periods of low liquidity compared to stocks with a high level of float. And when there aren’t many shares available, buying and selling those that remain could increase the stock’s volatility. For this reason, many large institutional investors may choose to trade in shares of companies with a large float. An example of a widely traded stock with a large float is Apple (ticker AAPL). In June 2021, Apple’s float percentage was 99.9% of the total shares outstanding. Ownership by corporate insiders was 0.07% of 16.53 billion shares.
Floating Stock vs. Shares Outstanding
Shares outstanding refers to all shares of a company’s stock held by shareholders—this includes company insiders, institutional investors, and the general investing public. Floating stock is the total of outstanding shares minus shares that individuals and corporations closely associated with the company hold. Market capitalization is the product of a company’s outstanding shares times the share price of the stock. Market cap changes continually. Another version of market cap is “free-float market cap,” which is the product of floating shares multiplied by the market price per share. This method is used by major stock indexes like the S&P 500 and the Dow Jones Industrial Average.
What Stock Float Means for Individual Investors
For most individual investors, a company’s stock float will not have much meaning. This is especially true if the investor does all or most of their investing using pooled investment vehicles (such as mutual funds and ETFs) that invest in multiple stock holdings. Stock float will also not have much impact on individual investors who tend to buy and hold shares of stock for a long period of time. The level of a stock’s float percentage could have an impact on investors who trade in and out of a stock frequently, though. For stocks with a low float percentage, investors could run into liquidity issues when trying to buy or sell. This could result in a larger bid-ask spread, meaning they might have to sell shares at a lower price and buy at a higher price. In extreme cases, this could significantly impact an investor’s profit. On the other hand, some investors like to see stocks with a relatively low float, as this is an indicator that company insiders like the stock’s prospects for the future. However, it’s important to understand that the price of stocks with low float can be significantly impacted by trades made by investors holding these shares. The Balance does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future performance. Investing involves risk, including the possible loss of principal.
