Investing > What is Float in Stocks?

What is Float in Stocks?

Stock float is often overlooked, but if properly understood, it can be a great lens through which to judge potential investments.

By
Reviewed by
Updated January 08, 2022

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Looking for a company to invest in, but not sure how many regular shares are available to the public? 🎈

Well, that’s an easy enough thing to find out—but this was a trick question. It doesn’t matter how many shares of a company exist, because not all of those shares are available to the public. Some are held by employees, some are held by insiders—it doesn’t matter, as those shares won’t see the light of day.

However, there is a much simpler approach that can give you actionable information—and that is stock float. In simple terms, float represents the number of shares that are available for trading to retail investors like us.

Looking at a company’s float can give you plenty of insight into the fundamental state of the underlying business—but the more important factor is that float has a noticeable impact on volatility. And as you probably well know, volatility cuts both ways—although stocks with low float are risky, they have the potential to net investors huge profits. 

On the other hand, stocks with high float are stable and highly liquid, meaning that they are generally safer investments. Once you understand the key concepts related to stock float, you can glean a lot of information about a company through a single metric.

What you’ll learn
  • What Does Float Mean in Stocks?
  • Why Stock Float is Important
  • How Stock Float Works
  • Low Float Stock Example
  • Keep in Mind When Looking at Stock Float
  • Keep Expectations Reasonable
  • Are Low Float Stocks Risky?
  • Get Started with a Stock Broker

What Does Float Mean in Stocks? 🦅

The concept of the float is rather simple—it is the number of shares that a company has made available for trading. You might conclude that this simply means how many shares a company has issued—but there’s a difference.

You see, not all of a company’s stock is available for trading. Some might be held by controlling investors, given to employees, or bought in recent IPOs and subject to certain restrictions.

Float tells us how many shares of a company’s stock are actually on the stock market. The total number of stocks is referred to as outstanding shares—when we subtract the restricted shares that we’ve just mentioned, we get the float.

Float is a term that describes the number of shares of a particular stock that are available on the stock market.

So, float represents the actual number of shares that are traded. This is an incredibly important measure—as it allows us to see a much clearer picture of how much liquidity or illiquidity a stock will likely see.

In general, a stock is considered to have low float if the float is under 20 million shares. However, keep in mind that this isn’t ever a fixed number—as restricted shares hit the market, or institutional investors decide to invest in a company, the float will change. Events that can also have a big effect on a stock’s float are buybacks.

Why Stock Float is Important ✨

Stock float can give us valuable insights regarding the underlying health of the business in question. First of all, as we’ve mentioned, low-float stocks exhibit much higher volatility on average. This comes as no surprise—with fewer shares being traded, each trade has a much bigger effect on the stock price than it usually would.

Another factor that comes into play is the large bid / ask spreads. These additional costs make purchasing these stocks less appealing, but it also makes it harder to turn a profit when you decide to sell.

And speaking of selling, if you decide to do so, it might not go as smoothly as you’re expecting. With above-average volatility, bid/ask spreads, and fewer shares traded overall, liquidity is an issue. You might have a tough time selling these stocks at a profit-making the entire ordeal even more complicated.

The low level of trading seen with these stocks makes it much easier for investors to manipulate prices by purchasing large amounts of shares. Although this isn’t a common occurrence, it is possible, and you should definitely keep it in mind. 

On top of that, low float stocks are much more sensitive to press releases. Because of all of these factors, many like to draw a comparison between penny stocks, over-the-counter stocks, pink sheets, and low-float stocks—however, the key difference lies in the fact that companies with low float are much more likely to be financially healthy.

High float stocks, on the other hand, are the complete opposite. A stock is generally considered to have a high float if the float exceeds 100 million. These stocks exhibit narrow bid/ask spreads, high liquidity, and much less volatility than the market at large.

Low Float StocksHigh Float Stocks
Above-average volatilityAverage or below-average volatility
Higher chance of liquidity issuesAlmost no chance of liquidity issues
Large bid/ask spreadsNarrow bid/ask spreads
Float under 20 millionFloat over 100 million

How Stock Float Works 🤔

Alright, we’ve covered the basics and explained why float matters—but you might still be a bit confused as to how it works. Don’t worry—although the terms might seem a bit unclear now, we’re going to explain them using plain, simple language.

Outstanding shares is a term that means all the shares of a company in existence. However, not all of those shares are available for trading. Those that are available to the public to trade comprise the float.

Let’s use a hypothetical example—Corporation A has 50 million outstanding shares. However, of those 50 million, 20 million are held by insiders, 5 million are distributed to employees, and 15 million are held by the founder of the company.

Or better yet, to bring things closer to home, let’s ditch the hypothetical and look at the example of Robinhood, one of the most popular stock trading apps for retail investors. Robinhood decided to float only about 35% of its shares to the public.

Once you subtract those shares, you’re left with 20 million shares available to the public—and in our hypothetical case, that would be the float of Corporation A. Keep in mind that this isn’t a fixed number—buybacks, stock splits, and restricted shares entering the market mean that no company will experience the same level of float throughout the years.

Outstanding and Authorized Shares vs. Float ⚖️

Now that we have a basic idea of what float is, let’s take a small step back and look at the (slightly) bigger picture. Clearing up the terms related to float will help you piece everything together, and it might even make it easier to remember.

As we’ve mentioned, outstanding shares are all the shares that a company has issued, plain and simple. Authorized shares refer to the number of shares that a company is legally allowed to issue—however, it doesn’t have to issue all of those shares.

In practice, this means that the maximum number of outstanding shares is often the number of authorized shares—however, the number of outstanding shares can be and often is much smaller than the number of authorized shares.

The amount of authorized shares is set when a company goes public—for example, the British company Wise went public in 2021, issuing a billion shares. However, this isn’t the be-all-end-all regarding authorized shares. A company can use a shareholder meeting to decide to authorize more shares, like AMC did in July of 2021 if the majority of shareholders agree. 

However, this rarely happens—and when it does, it is usually a cause for concern, as publicly traded companies should already have healthy financials and means of raising capital without resorting to diluting their stock.

Authorized SharesOutstanding SharesFloat
The maximum amount of shares that can be issuedAmount of shares that have been issuedAmount of issued shares that are available to the public

Stock Float vs. Volume 🛡️

Another important term that you’ll often encounter is trading volume. It also deals with the number of stocks being traded, however, it is a distinct term from the float—and you must understand the difference.

A stock’s float tells us how many shares are available to the public for trading. However, the fact that these stocks are available or unrestricted doesn’t mean that they are actually being traded—individual investors are just as capable of long-term, buy and hold investing as institutions and insiders are.

A stock’s trading volume is the measure that tells us how many shares are being traded in a given period. You can look at volume through the lens of a single day, a month, or even a year—and stock trading volume is a factor that deserves as much consideration as float does when it comes time to decide whether to invest or not.

Stock Float vs Volume
Volume is usually marked by bars at the bottom of a price chart and it is ever-changing, unlike float. Image by TradingView.

In particular, the combination of high float and low volume is the one that deserves the most interest. If there are a lot of shares that are available to the public in theory but aren’t actually being traded, then the high float of the stock in question is essentially a meaningless figure, as the same liquidity issues will arise.

How to Find Low Float Stocks 🔍

Right about now, you might be wondering—well this is all fine, but how am I supposed to actually find low-float stocks? Am I going to have to sift through tens of pages of financial reports for each stock that I want to invest in?

Rest easy—the answer to that question is no. Thankfully, a lot of the information regarding stock float is publicly available and easy to access. Sites like Yahoo Finance offer a quick and easy way to find the relevant information, and they’re far from the only site that offers such services.

If you’re looking for something a bit more customizable and capable of factoring in other parameters, you’re going to want to look into some stock analysis software. Particularly stock screeners—many of which have the capability of sorting out low-float stocks for a quick and simple overview.

The market for stock screeners is huge—there are a lot of products that offer this service. Picking a good stock screener is immensely helpful—not only does it help with stock float, but it is a valuable research tool in its own right—so consider investing in one. Keep in mind, however, that this is another expense in a field of the stock market that is already volatile by nature—so if you’re a beginner, stick to the basics and other low-risk approaches for now.

Low Float Stock Example 🪂

Float, outstanding shares, volume—things can get a little heady and abstract at this point. We’ll take the opportunity to bring the topic a bit closer to home—with an example. Servotronics (SVT) is a company that manufactures and designs motion control systems.

The company has around 2.5 million shares outstanding. While that isn’t all too much, provided that there’s enough volume, it could potentially be a good opportunity. However, this stock has extremely low float. 

In fact, the float is just 1.04 million—less than half of the shares outstanding. So, what does all of that tell us? We have a small number of shares outstanding, an extremely low float, and a low volume—meaning that this is a highly illiquid security. 

It’s risky, more likely to see large bid/ask spreads, and it would prove very difficult to get rid of your shares if you decided to buy. And in a climate where volatility often leads to sharp corrections in stock prices, being stuck with shares is something you want to avoid. Put simply, it isn’t a very good trading opportunity—and without looking at the float, you might be led to believe otherwise.

Let’s take a look at another example—Revlon (REV) is a renowned cosmetics company. The amount of outstanding shares in this example is a whopping 53.5 million—however, the float is only 7.01 million—just a seventh of the number of outstanding shares.

However, if you take a look at the high average trading volume for Revlon, it becomes clear that this company’s stock won’t experience illiquidity like Servotronics. Not all low-float stocks are made equal—however, you always have to factor in float when deciding whether to invest or not.

What to Keep in Mind When Looking at Stock Float 🧠

Now that you have a solid grasp of the concept of stock float and the related terms, let’s move on to something a bit more concrete—actual tips and advice on how to leverage this knowledge for your benefit.

Buying and Selling 🧾

A stock’s float will depend on the number of shares that are available to the public. This means that buying and selling shares doesn’t actually impact the float—the grand total of freely available shares remains the same.

Derivatives 📅

Complex financial instruments such as derivatives, which include futures, swaps, options, and short selling, don’t affect the float of a stock because none of these types of securities actually change the number of stocks available for trading.

Keep Percentages in Mind 📋

If you’re looking at a company’s float (and you should), things can quickly become tiresome—looking at shares outstanding, then subtracting restricted shares, keeping in mind that we’re usually talking about millions here—it’s enough to make your head spin.

There’s a much better and more elegant way to approach the topic of stock float, and this method is universally applicable to all stocks. Simply take the free float, divide that by the number of shares outstanding, and multiply by 100. You’ll get a number that will represent the stock’s float percentage—a figure that is much easier to work with.

Always Check Volume 🔈

Stock float is a useful metric that should be kept in mind. However, it can’t give us the whole picture—so we also have to keep other factors in mind, the most important of which is trading volume.

If a stock exhibits both low float and low trading volume, it is incredibly illiquid, meaning that you should probably avoid it. However, stocks that have a low float and high average trading volumes can easily turn out to be great opportunities.

Pay Attention to the News 📰

Because of their low levels of liquidity, as well as a lower overall trading volume, the effect of the news on the price of low-float stocks is much greater than with regular stocks. If you’ve invested or are planning to invest in a low float stock, it’s worth it to keep tabs on how the media is covering the business in question. 

However, because of the liquidity issues that arise with low-float stocks, it’s well worth it to pay attention to the stock market in large as well—for example, news about above-average earnings can fail to boost investor confidence despite expectations. In an era where even positive news fails to rally the stock market, it is essential to at least know when your hard-to-sell securities will face price drops.

Then, there are also cases like the aforementioned Revlon and the Q3 earnings report they published in November 2020. Essentially, the report was really inspiring for investors and it led to a mind-boggling jump in volume and stock price.

REV trading volume
REV trading volume jumped after a positive earnings report in late 2020, making the stock price rise as well. Image by TradingView.

All in all, although it is not fool-proof or easy, if you have the time and patience to really apply yourself to this strategy, trading the news can be a great way to approach low-float stocks—as long as you have enough time to devote to this fast-paced, hands-on approach.

Keep Expectations Reasonable—and Know When to Quit Ahead 🚫

Low-float stocks are riskier than regular stocks. However, the same volatility that makes low-float stocks risky also makes it so that they can potentially experience a huge upside.

Identifying a good opportunity is no small feat—and there’s always an element of risk involved. However, you will eventually pick a winner—and when you do, it is imperative that you keep this piece of advice in mind.

First, keep expectations reasonable. If a low-float stock experiences a large price increase, you should take the win, realize your gains, and move on. Setting price targets is a simple way to accomplish this. Staying invested for a couple of more days to see if the stock price will continue climbing isn’t worth the risk—knowing when to sell a stock is crucial.

Don’t Forget Fundamental and Technical Analysis 🔬

Float and volume should always be considered before you decide to invest—however, they are just two pieces of a much bigger puzzle. Even if you’re going to invest for the short-term, even if you are a day trader, having an overview of a company’s financial wellbeing is a big leg up on the competition.

Fundamental and technical analysis allow you to get a much more grounded, realistic, and holistic overview of how a company is doing. Fundamental analysis deals with the long-term prospects of a company viewed through its financial disclosures, while technical analysis seeks to identify trends and patterns based on past performance. Both of these approaches need to be studied—and if you plan on day-trading, technical analysis, in particular, is essential.

Are Low Float Stocks Risky? ⚠️

The lower supply that is seen in low-float stocks means that they exhibit more volatility. This has a host of effects on how these stocks typically behave—some of which are positive, and some of which are negative.

So, are low-float stocks risky? Yes, potentially—the combination of low float and low trading volume can lead to very large bid/ask spreads, as well as liquidity issues—in other words, being unable to sell your shares.

However, risk and reward go hand in hand—that same volatility can be utilized to net you great returns, provided that you know how to day trade low-float stocks. A stock that has low float but high relative trading volume might very well be a good opportunity.

Lower trading volumes also mean that news coverage has a much bigger impact on the price of such stocks—meaning that news traders should pay close attention to low-float stocks.

When low-float stocks see price changes, those changes are sudden and steep—double digits are a common occurrence. If you know how to identify good opportunities, day trading low-float stocks can be vastly profitable—but that level of risk is simply too nerve-wracking and excessive for most investors.

Conclusion 🏁

Thanks for sticking with us until the end! The topic of stock float might seem a bit confusing at first, but there’s really nothing all too complex about it. Although it might not be the most interesting topic, this relatively small bit of knowledge can lead you to some big opportunities if you study it carefully.

Traditional buy-and-hold investors should still be aware of stock float and how it relates to price movements. However, if you’ve decided that trading is how you want to go about things, then this is essential knowledge—and we’re happy to have provided it.

Stock Trading: 'Float' FAQs

  • Is Low Float Good or Bad?

    Low float is correlated with higher volatility. While that means that these stocks are riskier, they can also be very profitable.

  • Can a Stock Run out of Shares?

    No—a stock cannot run out of shares. It is theoretically possible for the trading volume to be zero, in which case no one can buy shares that are held by earlier investors.

  • What Happens If a Stock Hits 0?

    Stocks that hit 0 will most likely cause the company that issues them to either declare bankruptcy or to continue trading as an over-the-counter (OTC) stock.

  • Can I Sell Stock Today and Buy Tomorrow?

    Yes, you can sell a stock today and buy it tomorrow—however, you have to keep in mind that this will put you at risk of being flagged as a pattern day trader.

Get Started with a Stock Broker

Fees
Commissions

$0

$0

Account minimum

$500

$0

Minimum initial deposit

$0

$0

General
Best for

Beginners and mutual fund investors

DIY stock trading

Highlight

Low fees

Pioneer of commission-free stock trading

Promotion

Free stock

Rating
Fees
Commissions

$0

$0

Account minimum

$0

$0

Minimum initial deposit

$0

$0

General
Best for

DIY stock trading

New investors

Highlight

Pioneer of commission-free stock trading

Value-based investing

Promotion

Free stock

$5 bonus¹

Rating
Fees

Commissions

$0

$0

$0

Account minimum

$500

$0

$0

Minimum initial deposit

$0

$0

$0

General

Best for

Beginners and mutual fund investors

DIY stock trading

New investors

Highlight

Low fees

Pioneer of commission-free stock trading

Value-based investing

Promotion

Free stock

$5 bonus¹

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Cookies & Privacy

The Tokenist uses cookies to provide you with a great experience and enables you to enjoy all the functionality of the site.