What does float mean in stocks? The float of a stock is the number of shares that are actually available to trade. In other words, these are shares the company makes public or shares available for trading on the open market. This is calculated by subtracting the number of shares owned by insiders, employees, and major long-term shareholders from the total shares outstanding.
Table of Contents
What Does the Float Mean in Stocks?
The float of a stock is important to how well a stock potentially moves, or how volatile it is. Low float stocks are very volatile and have bigger moves. Higher float are less volatile and have smaller price moves. Especially with small caps and lower-priced stocks. If you don’t know the float…don’t trade it. You’ll understand why if you keep reading.
When a stock float is lower, and demand is higher, this can impact a stock dramatically. Demand goes up when news drops or an analyst upgrades the stock.
These two factions are fighting over the number of shares, or supply available. Hence the importance of share count and knowing what does float mean in stocks. Knowledge is power.
The shares that are held by insiders, employees, and major shareholders are known as closely held shares. These closely-held shares are not shares that are being traded on a daily basis. so the fact that they are being held makes a company’s “float” lower depending on how many are held by the “insiders”.
If the price is right, you may begin to see those closely-held shares joining the float. The float of a company is important to investors, however, because it allows them to see how many shares the public can buy and sell.
The float doesn’t affect a company unless they are adding more shares into distribution which is known as an offering. The stock is there for the purpose of being bought and sold. How traders trade doesn’t affect a company because it’s just a redistribution of the shares.
However, if the stock keeps dropping, and drops below a dollar for too long, it can be kicked off the NYSE, which can have a negative impact on the company. If that happens, there are often bigger problems afoot.
Does Stock Float Change?
The float does not change from day to day, but it can change occasionally. Some companies do “offerings’ and dilute the amount, or increase the number of shares held by the general public. Stock dilution is commonly taken as a bad thing, and in the small, mid, and micro-cap world, a stock will often tank after an offering was announced.
Here we see that $ARAV added shares to their float in a secondary offering (to raise money) See how the price tanked and then recovered?
Aravive, Inc. (Nasdaq: ARAV), (“Aravive”) a clinical-stage biopharmaceutical company developing treatments designed to halt the progression of life-threatening diseases, including cancer and fibrosis, today announced that it has commenced an underwritten public offering of the sale of its shares of common stock. In connection with this offering. There are high float and low float stocks. That can and does affect the price movement of a stock.
My preference is low float stocks (sub 10 million) for scalping stocks using hotkeys. I typically only hold for a few candles because the bid-ask spread is usually wide and I need to get in and out quick. I watch the volume and the price action and trade quickly.
Again, the price of the stock can change by .40 cents in a few seconds, so you need to be quick. Using hotkeys on DAS Trader is recommended.
Penny stocks are well known for doing this. Go and check a penny stock chart after a public offering. Here’s another example below of OTlK’s offering.
Again, check out what happens when a penny stock adds to its float with an offering. The float is only 9 million, but there are 18 million shares outstanding as of now.
How Do You Find the Float of a Stock?
- How do you find the float of a stock? Here’s how:
- Some brokers will show the float of each stocks.
- Other brokers will show it as “shares outstanding” instead, which is higher.
- Other ways to research are Yahoo Finance.
- Or simple Google search.
Price Movements
When asking what does float mean in stocks you need to know how it affects price movements. Volume and float work hand in hand. The lower the float and the higher the volume (demand), the more volatility there is, and the harder it may be to trade.
Typically a news catalyst or something like that will affect the demand of a stock. And thus, volume shoots up, supply is low, so the stocks price goes up, fast. So what about high float stocks?
When a stock has a high float, it means that there are a lot of shares available. When there are a lot of shares to go around, then everyone can get the stock. That’s not necessarily a bad thing although it does mean that price will most likely move more slowly compared to a much lower float.
I find the sweet spot between volatility and price action are floats in the medium range. 15-40 million share floats don’t typically move too fast. They give you time to think. They still will grind up intra-day and make for good plays.
If you’re a long-term investor then the slow grind wouldn’t make as much of an impact. It all depends on the type of trader you are. Maybe you like variety. If so you can trade different types of floats, and you can have the right expectations when you do.
Low float stocks are a whole different animal, especially when you trade penny stocks. When the stock has a low float it means there aren’t a lot of shares to trade. So when the demand of a stock is high traders are fighting for shares. The bid-ask spread is tight. Then wide. In seconds flat. Price moves quickly and typically follows momentum moving averages and indicators up. The price can rocket or crash in seconds, and halt.
Hence that tug of war between buyers and sellers. In fact, a high-demand stock can mean buyers are fighting each other for shares. Day traders are hunters of volatility. They use scanners like trade ideas to find the best setups.
In this case, low float stocks are very attractive. You can get in and out quickly. It’s also why volume is important. You need volume to push price in the direction you want it to go. A low float stock with no volume means that it’s not going anywhere.
Day trading strategies oftentimes require low float, volume, and volatility. Low float momentum stocks are the bread and butter of day trading.
Technical Analysis
You may be able to answer the question what does float mean in stocks but there’s more to trading than that. When you find those low float movers, you need to have experience with them.
Don’t dive head into it. You’ll get burned. It’s harder to trade the low float momentum stocks. Even the best traders in the world have a hard time with them.
Technical analysis can make or break a trade. If you don’t know how to use moving averages or find support and resistance, you’re trading blind. Support and resistance is crucial. That’s what we try to instill in our members with our videos and steams. We want to keep you safe!
Traders pay such close attention to it. If you’re going long and you buy at resistance, you could very well blow up your account. Just because a stock has a low float doesn’t mean to place a trade.
The technical indicators confirm moves and help with direction.
Patterns
Patterns play another huge part in trading. Stock patterns such as piercing patterns or dark cloud cover patterns will determine how you trade. While they may not be a crystal ball, patterns are important.
Patterns also provide key support and resistance levels. Everything works hand in hand in the stock market. That’s why it’s so important to study and practice.
The Bottom Line
What does float mean in stocks is an important question to ask before you trade. The lower the float the more volatile when the volume exploded or a news event hits. That is a day trader’s dream. Volatile low floaters can help and hurt traders. High stock floats can still move big, and trade more stable. It’s up to you to decide what your style is.
The most important thing is knowing patterns as well as technical indicators so you can take advantage of either.
