If you’re starting to get into stocks – maybe you’re interested in investing in some – and you want to find out more about what the many specific terms and jargon mean within the world of stocks and shares, you have a lot of learning to do.
Investing in the stock market is a risky business and you need to know everything about it before you even think about buying any stocks, so that you fully understand how to go about investing in them and you can be prepared if something goes wrong.
It’s definitely best to learn about everything relating to the stock market bit by bit and one element at a time, otherwise you might find your brain giving up halfway through, and, therefore, you won’t be taking in all the information you actually need to.
In this particular article, we’re going to be explaining about floats in stocks, so read on to find out what exactly a float is, how they work, and why they’re so important to understand.
What Is A Float In Stocks?
Floating stock is basically the complete amount of public shares that a company has available to trade on the open market. It doesn’t include restricted or closely held stocks, though, so it isn’t the total amount of all of their shares – only their public ones.
If you don’t already know, restricted shares are the insider shares that aren’t allowed to be traded due to a temporary restriction put in place, and closely held shares are shares that are owned by insiders, major shareholders and employees, so these aren’t applicable when it comes to trading to the public.
Therefore, as floating stock doesn’t include these types of shares, the way to work out a certain company’s floating stock is to subtract the amount of restricted shares and closely held shares from the total number of outstanding shares.
A stock float can be expressed as either an absolute figure, for example as ‘15 million shares’, or as a percentage of the total outstanding shares of a company.
An example of this is, if a company has a grand total of 100 million shares but only 65 of those shares are actually available to the public, the stock float will either be expressed as 65 million or 65%.
How Do Stock Floats Work?
Floating stocks will fluctuate a lot over time, which is natural due to the fact that they’re available to the public for trading, which means they’ll be influenced by a variety of different factors.
These fluctuations are described as being either low float stocks (see also ‘What Does Low Float Stock Mean?‘) or high float stocks, depending on whether the fluctuation is up or down.
Floats can increase if a company supplies new shares in an effort to make their capital higher or if major shareholders and insiders sell a lot of shares, and they can decrease if major shareholders or insiders buy up the shares instead.
Whether a floating stock is high or low (see also ‘What Is Considered A Low Float Stock?’) is an extremely important factor for investors to consider because it shows how many shares are actually able to be bought or sold by the general public that can invest in them.
High Float Stocks
A stock float is considered to be high if there are a large amount of public shares available to trade. So, if most of the total amount of stock of a company is available to the public for trading, then this is a high float.
This also indicates that it’s easier for investors to purchase and sell the stocks due to the fact there isn’t much demand for them.
Institutional investors, like insurance companies, tend to prefer these kinds of stocks because they can purchase a high number of shares without it affecting the stock price too much.
Low Float Stocks
A stock float is considered to be low if there are only a small number of public shares available to trade on the open market. This is usually either because the company has a large amount of restricted shares or closely held shares, or has a low number of investors.
A low number of investors would come about due to the low amount of public shares available, so it can potentially discourage investment because they’re difficult to buy.
Why Is Floating Stock Important?
Floating stock is extremely important to investors and is something that they have to keep an eye on all the time so that they know whether a certain company has a high or low amount of public shares to trade with on the open market.
This kind of information can be vital in certain key moments, such as during a short squeeze, and it’s also very important because it helps investors understand the company better in terms of their ownership structure and how they might handle certain things in the future regarding raising money, etc.
A good example of just how crucial the stock float can be is what happened with the short squeeze of GameStop stock in 2021.
They reduced the float the year before by re-buying their own stock. This then led to investors selling the stock short, which resulted in the short-selling investors repurchasing more stock than what was actually available in the float. This ultimately played a big part in making the stock squeeze higher.
If you’re looking to invest in stocks and shares, you’re going to need to know everything there is to possibly know about the stock market.
In this article we’ve covered what a floating stock is, which is particularly important for you to understand as a public investor, because floating stock is the total amount of a company’s public shares that are available to buy and sell on the open market.
We hope this article has helped you understand all you need to know about what a float is in stocks!
If you enjoyed this article, you might enjoy our post on ‘What Does Mark Mean In Stocks?‘.