So what is a stock float?
Whenever a certain amount of shares becomes available in a company, they put it on the open market for trading. The number of these public shares up for trading is what we call a stock float.
A stock float indicates how many shares of the company can be bought or sold at the moment. This excludes the closely held and restricted stocks of the said company.
So whenever someone asks you what is a stock float, remember that it is not the total number of shares a company owns but the amount they have up for public trading instead.
How a Stock Float Works
As we mentioned earlier, a stock float is different from the total number of company shares. Now the total count of shares also has a name, they’re called shares outstanding.
In a company, shares outstanding are of great quantity, while stock floats are always limited. This is due to the existence of closely held and restricted shares which are owned by the company’s executives, directors, and others.
So, what is a float in stocks?
The number of shares open for public trading has a tendency to plummet and rise over time. This is due to various factors affecting the said shares.
Why Stock Floats are Important
One of the crucial purposes of stock floats is to indicate the number of shares that are currently available at the moment. This of course only concerns the general investing public.
Plus, stock floats also identify the quality of shares in the market. It does this by identifying whether they are low or high-float stocks.
Stocks become low-float when only a small percentage of them are available. And before you ask what is a high float stock, they are shares that are abundant in the market.
Neither of the two is less than the other. It all depends on preference. Some investors prefer to invest short-term and go for low-float stocks. While others are looking for long-term profit and search for high-float stocks.
A company’s stock becomes either low or high float depending on the volume of the closely held and restricted shares. They may manipulate this volume to match the current demand in the market as well.
What are Low Float Stocks?
Now that we’ve acknowledged the answer to what is a float in stock trading, let’s discuss what is a low float stock.
Low-floating stocks are a low percentage of shares available in the trading market. So, when do we consider a share to be of “low percentage”? The common rule of thumb would be any amount below 10 million.
Low percentages occur due to either a lack of investors or an excessive amount of closely held and restricted shares.
One of the significant qualities of low-float shares is their volatility. This means that they have the tendency to change drastically over time. And that is what makes them perfect for short-term investments.
Let’s expound more on the shares outstanding which we previewed a few paragraphs back.
People often mistake low-float stocks for shares outstanding. The best way to set them apart is to remember that shares outstanding are the total count of shares in a company. Regardless of the kind of shares those are.
On the other hand, publicly available shares for trading is the correct answer as to what is a stock float.
Shares outstanding are important since they can calculate the quality of floating stocks in the market. By subtracting the stock float from it, you’ll be able to identify the number of shares not available to the public, in short, the closely held and restricted shares.
Stock Manipulation and Float
Manipulation in the trading market happens when a company alters the amount of supply for its shares to fit the current demand in the market.
Doing so will cause the prices of said stocks to either rise or fall drastically. One example of market manipulation would be when a company lessens its closely held and restricted shares. This will result in high-float stocks, which may be the current interest of the investors.