Floating Stock
Candlefocus EditorThe float percentage is the total number of a company’s outstanding shares available to the public to be traded. A company’s float percentage is calculated by dividing its Floating Stock by its Total Outstanding Shares. It is typically expressed as a percentage. The float percentage of a company is constantly in flux due to additions or deletions of shares due to equity financing, stock buybacks, stock options and other means.
Floating stock can also be referred to as freely trading stock, marketable securities, or available shares. These are companies trading publicly and the number of available shares in the market that can be traded by investors. When there is high demand for the company's stock, but limited shares available, increased speculative demand and price volatility will occur. High demand with low supply may cause the price of the stock to outperform in the short term, but can also be very risky for investors.
Investors should pay attention to a company’s float percentage as this is a critical factor when deciding where to allocate their capital. Low floating stocks are more volatile than those with higher float. Due to the relatively small number of shares outstanding, it can be difficult to enter and exit positions in low floating stocks. These stocks are often expensive to buy and sell, since each shares represent a larger percentage of the total available shares to trade.
High floating stocks make it easier for investors to buy or sell as the liquidity on the market is higher. Due to the increased supply of shares, the prices tend to be less volatile as the risk is more evenly spread across more shares.
In sum, it is important to have an understanding of a company’s Floating Stock, as such an understanding can help investors make wiser and more informed investment decisions. By knowing how many shares are available to trade, investors can determine whether a certain stock is worth buying, and whether or not the price is right. Additionally, if a company has a particularly high or low float percentage, this could be an indicator of further risks taking and thus a stock should be further evaluated prior to investment.