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Free Float

Free float refers to the number of a company’s shares that are publicly available for trading on the open market. It excludes restricted shares held by insiders, major shareholders, or the government. The free float is an important measure of a stock’s liquidity and market capitalization, affecting its inclusion in major indices. A higher free float indicates greater liquidity, allowing for easier buying and selling of shares without significantly impacting the stock price.

Example

A company has 10 million total shares, with 4 million held by insiders. The free float is 6 million shares, representing the portion available for public trading.

Key points

• Represents the publicly available shares of a company.

• Excludes restricted shares held by insiders and major shareholders.

• Affects stock liquidity, volatility, and index inclusion.

Quick Answers to Curious Questions

A higher free float means more shares are available for trading, enhancing liquidity and reducing price volatility during large transactions.

Major indices often require a minimum free float percentage to ensure sufficient liquidity, making it easier for index funds to replicate the index.

Changes in free float, such as from insider sales, can impact liquidity, trading volume, and investor sentiment, influencing stock price movements.
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