When it comes to the stock market, there are a lot of terms and concepts that can be confusing for beginners. One of these is the term “share float.”
What does this mean, and why is it important? We’ll break down what share float is and how it affects your investments.
Definition of a share float
A float is the number of shares of a particular stock available for trading. The term “float” can also refer to the total value of all company shares available for trading.
A company’s share float is the portion of its shares that are not held by insiders—such as the company’s founders, executives, or major investors—and are available for trade on the open market.
Why is share float important?
The float can be a useful indicator of a company’s liquidity, as it represents the portion of shares that can be bought and sold by the general public.
A company with a large share float may be more liquid than one with a small share float, as there are more shares available to be traded. However, a company with a large share float may also be more vulnerable to volatile swings in the stock market, as there are more shares are potentially subject to sell-offs.
How is the share float calculated?
It is calculated by considering the number of restricted shares from the total number of shares. As said, restricted shares are held by insiders, such as company officers and directors, and are not available for public trading. The share float can vary daily, as insider holdings can change.
For example, if a company officer sells some of his or her shares, that will increase the share float. Conversely, if a company buys back its own shares, that will decrease the share float.
What is the impact of a large or small share float on a company’s stock price
A high float indicates a large supply of shares available for trading, which can lead to lower stock prices. A low float indicates a smaller supply of shares available for trading, which can lead to higher stock prices.
A large share float indicates a lot of liquidity in the stock, which is generally seen as positive by investors. This is because there are more buyers than sellers, and the stock is less likely to be impacted by individual trades.
On the other hand, a small share float can cause the stock price to be more volatile. This is because a small number of trades can significantly impact the supply and demand balance. As a result, a small share float can increase a stock’s risk and reward potential.
There is no definitive answer as to whether a large or small share float is better for a company, it is important to consider the implications of each before making any investment decisions.
Disclaimer: these articles are for educational purposes only. Market analysis, prices, news, trade ideas, or any other information within this site or the chatroom is not investment advice.