Floating stock is the number of shares available for trading to the general public in the stock market. It signifies the aggregate shares of a stock that are open for public investment. If a company has low shares available for trading, it has a low float; thus, it becomes extensively difficult to find buyers or sellers who are ready to trade in stock market.
So, how do floating stocks work? What does stock float mean? The level of a company’s stock float reveals the percentage of total shares that are outstanding. A company with a low float signifies that it’s difficult to buy or sell. Conversely, a high float signifies many shareholders being available to trade in it.
Floating stock formula
Floating stocks play a vital role for any business. If you are trying to figure out a company’s valuation, you must be aware of the formula to calculate it:
Floating Stock = Outstanding Shares − Restricted Shares − Institution-owned Shares − Employee Stock Ownership Plans
Where:
- Restricted shares mean that these shares cannot be traded until the lock-in period is over. The lock-in period is up until the period conditions are met. Their restricted nature also suggests that they can’t be transferred to other parties.
- Employee stock ownership plan is widely common in public companies where the employees get to be owners and shareholders of the company.
Features of floating stock
The liquidity of floating stocks depends on the availability of such stocks in the stock market.
Floating stocks and volatility depict an inverse relationship. The higher the floating stocks, the lesser the volatility; the lesser the floating stocks, the higher the volatility.
What to be wary of?
- Considering that it is quite a simple measure to manipulate the prices of low float stocks (stocks with lesser numbers available for trading), it could seem that companies might be trying to hoodwink their investors.
- As the hold of the actual number of floating shares is in the companies’ hands, they may choose to decrease or increase that number without actually needing some new capital. This may lead to equity dilution, thereby displeasing existing shareholders.
Floating stock from an investing point of view
Floating stocks simply refer to the number of shares available for trading currently. When deciding on stocks to buy today, floating stock helps you to understand a company’s financial position and determine if you want to invest in stock market today.
