What is Float?

1310 reads · Last updated: December 5, 2024

Float, also known as free float or public float, refers to the number of a company's shares that are available for trading in the open market. It excludes restricted shares, such as those held by company insiders or shares repurchased by the company. Float is an important measure of a stock's liquidity, indicating how many shares are available for public trading. The formula for calculating float is:Float=Total Shares Outstanding−Restricted SharesRestricted shares typically include those held by company executives, directors, and large shareholders, which are subject to certain restrictions and cannot be sold immediately in the market.

Definition

Floating shares refer to the number of a company's shares that are available for trading on the securities market. They do not include restricted shares, such as those held by insiders or shares repurchased by the company. Floating shares reflect the number of shares available for trading in the market and are an important indicator of a company's stock liquidity.

Origin

The concept of floating shares developed alongside the evolution of the securities market. In the early stock markets, all shares could be freely traded, but with the strengthening of corporate governance and market regulation, the concept of restricted shares emerged, necessitating the distinction between floating and non-floating shares.

Categories and Features

Floating shares are mainly divided into two categories: common floating shares and preferred floating shares. Common floating shares are the most prevalent type, granting holders voting rights and dividend distribution rights. Preferred floating shares typically do not have voting rights but have priority over common shares in dividend distribution. The main feature of floating shares is high liquidity, allowing them to be quickly bought and sold in the market.

Case Studies

Case 1: Apple Inc.'s floating shares decreased as a result of its stock buyback program. By repurchasing shares, Apple reduced the number of floating shares in the market, thereby increasing earnings per share. Case 2: Tesla, Inc. saw an increase in floating shares following its stock split, enabling more investors to participate in trading and enhancing market liquidity.

Common Issues

Investors often confuse floating shares with total issued shares. Floating shares do not include restricted shares and therefore cannot be equated with the total issued shares of a company. Additionally, changes in floating shares can affect stock liquidity and market price.

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