The float of a stock is the number of shares available for trading. The term “float” can refer to either the market float or the free float.
The market float is the total number of shares of a stock that are outstanding and available for trading. The free float is the number of shares that insiders do not hold.
The float of a stock is the number of shares available in the market. Another way to describe the float is the number of shares trading in the market.
A stock’s float is different from the market capitalization and the outstanding shares. The outstanding shares comprise all the stock a company issues. Outstanding shares are both in and out of the market. The float is part of the outstanding shares. Confusingly, a company’s balance sheet can list the outstanding shares as “capital stock.”
Market capitalization is the value of a company’s outstanding shares. Market capitalization does not determine a company’s value. A corporation’s assets can exceed the market capitalization. Similarly, the market cap can exceed the company’s value.
How to Calculate the Float of a Stock
To calculate the float of a stock, you need to know the number of shares outstanding and the number of shares held by insiders. To calculate the float, you subtract the restricted stock and the number of shares trading from the outstanding shares.
Float = Shares Outstanding – Shares Held by Insiders.
Restricted shares are stock not available to the public, such as preferred shares. Management often sells restricted shares to company insiders or institutional investors.
The float is important because it shows how many shares are in the market. Float can show you the demand for a stock and indicate future movements.
How to Find the Float of a Stock
You can find the float of a stock by checking the company’s Securities & Exchange Commission (SEC) filings. Those filings will tell you how much stock the company issues and what type of stock it issues.
The easiest way to find the float of a stock is to use a free stock screener such as FinViz.
Finding the float is important because it can show you the company’s ownership structure. Large numbers of shares outstanding that are not trading in the market can indicate an outside owner or shares in the hands of insiders.
SEC filings can reveal insider ownership and show how much stock executives own. Executives selling stock can show you how much faith they have in the company. Insiders selling stock can be an indicator of problems at a company.
The SEC filings can show you how much stock the company owns and if the management is buying back stock. Stock buybacks can inflate share value and help investors make money.
The Easy Way to Find the Float of a Stock Using Finviz
You can easily find the float of a stock using Finviz by opening a chart and looking at the information window.
3 Steps to Find the Float of a Stock with Finviz:
- Go to Finviz
- Click on any stock symbol
- Locate “Shs Float” or “Short Float” in the information windows below the stock chart.
How to Screen for Float & Short Float Using Finviz
Finviz is one of the few stock screeners that allows you to filter on Float and Short Float for free.
3 Steps to Screen for Float & Short Float with Finviz:
- Go to Finviz
- Click on “Screener”
- Select Filters “Description”
- Select “Float” or “Float Short” to get a list of stocks meeting your criteria
What is the Free Float of a Stock?
The free float of a stock is the number of shares that can be publicly traded. The size of the free float is important because it can show the ownership structure.
You calculate the free float by subtracting the market float from the shares outstanding. The resulting number is the free float. The float comprises the market float and the free float.
The size of the free float can show if large investors, insiders, and institutional investors such as pension funds, mutual funds, or hedge funds own large amounts of stock. A large float can indicate an investment analysts consider safe.
What is the Market Float of a Stock?
The market float is the amount of stock trading in the markets. You can calculate the market float by subtracting the trading volume from the free float.
The market float is hard to determine because it changes whenever stock trades. A high market float can show low demand for a stock, while a low market float can indicate high demand.
Market float can show how vulnerable a company is to a takeover. If a company’s market float is high, it can be easy for an outsider to takeover by buying up shares. Large amounts of outstanding shares outside the market indicate other owners who can block a buyout.
What is the Short Float?
Short float is the percentage of a stock’s market float that is shorted. When somebody shorts a stock, she borrows the shares from a broker or platform. The borrower is betting she can make enough money from short-selling the stock to pay the broker and make a profit.
Brokerages report the number of shares sellers are shorting twice a month. The amount of a company’s stock that is being shorted is the short float. Major exchanges, platforms, and financial news outlets post those figures on the web.
You can use a short interest ratio to identify overly shorted stocks. The short-interest ratio is the number of shares held short divided by the average daily trading volume. An overly shorted stock indicates traders think a stock price will fall. Short float is important because it can show you how much faith traders have in that stock.
Do Shorts Increase the Float of a Stock?
Shorts do not increase a stock’s float because the float is controlled by the company management and cannot be externally influenced by short-sellers.
Shorts can increase the short float on a stock because the short float is a financial calculation. Short Float is simple the percentage of the float being shorted by short-sellers.
The market float is the number of shares trading. The free float is the number of shares in private hands. Shorts cannot increase the number of shares trading. However, a high short-interest ratio can convince some people to sell shares and increase the market float.
Warren Buffett’s Float
You should not confuse the stock float with Warren Buffett’s definition of float. Buffett, and other value investors, use the term float to describe the amount of excess cash a company has. Companies such as Berkshire Hathaway (BRK.B) use float to pay for expansion and acquisitions.
Buffett’s definition of float often refers to companies with regular sources of cash, such as subscription payments. Amazon (AMZN) generates float from Amazon Prime subscriptions, for example.
The float of a stock is important because it shows how much demand there is for a stock. Float can also show the company’s ownership structure and indicate changes in ownership. All investors need to examine float because it can show you where a stock is going.
The Importance of the Float in Trading
It is important to remember that the float is not constant and can change over time. For example, a company may buy back its own stock, which would reduce the float. Or, a company may issue new shares, which would increase the float.
Float is just one factor to consider when trading stocks. It is important to do your own research before making any investment decisions.