The float is the number of shares available for trading. Float is calculated by subtracting shares held by institutions, insiders, employees, the company’s Employee Stock Ownership Plan or other major long-term shareholders, from the total shares outstanding.
Stocks with small floats usually are more volatile than stocks with large floats. Stocks with small floats are usually traded less and have wider bid-ask spreads. Institutional investors seldom invest in low-float stocks.
A company may have a large number of shares outstanding, but have a small float. For example, company ABCD might have 30 million shares outstanding, but institutions hold 10 million, and management and insiders hold 10 million, while another 5 million is held by the Employee Stock Ownership Plan (ESOP). Floating stock is therefore only 5 million shares (i.e. 30 million – 25 million), or 16.6% of outstanding shares.<< Back to Glossary Index