The float is the total number of a company’s shares that are available for the general public to trade on the open market.
Understanding a company’s float
A stock’s float is a specific subset of its outstanding shares. Outstanding shares represent every share a company has issued, including those held by company insiders, founders, and governments. The float subtracts these closely held, restricted shares from the total outstanding count to show how many shares are actually circulating on public exchanges.
The size of the float affects how a stock trades. A company with a small float has a limited supply of shares available. If demand for the stock suddenly increases, the price can move up rapidly because buyers have to bid higher to find willing sellers. This makes low-float stocks more volatile. Companies with a large float have millions or billions of shares exchanging hands regularly, which generally results in higher liquidity and more stable price movements.
A company’s float is not a static number. It changes based on corporate actions and insider activity. If a company authorizes a stock buyback program, it purchases shares from the open market and retires them, which reduces the float. If the company issues new equity to raise capital or if insiders sell their previously restricted shares after a lock-up period expires, the float increases.
Example
Imagine an agricultural supply company called Savannah Peanuts plc decides to list its business on a public exchange. The company issues 10 million total outstanding shares. The founders and early private investors retain 6 million of these shares, which are locked up and cannot be sold for a set period. The remaining 4 million shares are offered to the public.
For fellow Elephants looking to add this stock to their portfolios, the float is exactly 4 million shares. If a large pension fund decides to buy 1 million shares, they are consuming a full quarter of the available float. This high demand against a limited supply will likely drive the share price up quickly. Two years later, the founders decide to sell 2 million of their restricted shares on the open market. These newly available shares are added to the public pool, increasing the company’s float to 6 million shares.