Definition
Floating stock is a term used in finance to refer to the number of shares available for trading by the public. It does not include shares held by insiders, officers, or major shareholders. A large floating stock indicates more liquidity, meaning there is less chance of price manipulation due to large trades.
Key Takeaways
- Floating Stock refers to the number of shares available for trading of a particular stock. It is calculated by subtracting closely-held shares and restricted stock from a firm’s total outstanding shares.
- The larger the floating stock, the less volatile the price becomes, since there are more shares to spread out the trade impact. This means that companies with smaller floating stock may experience larger price fluctuations.
- Information about a company’s floating stock can be used by investors to help predict stock value and trends. It is also a critical factor in the calculation of the Dow Jones Industrial and S&P 500 index weights.
Importance
Floating Stock is a significant term in finance because it provides understanding and insight into a company’s available supply of shares for trading in the open market.
Floating stock represents the number of shares held by public investors and excludes restricted shares owned by company insiders and major stakeholders.
It plays a critical role in calculating key financial metrics such as earnings per share and price-to-earnings ratio which guide investment decisions.
Additionally, a larger floating stock can lead to higher market liquidity for the stock, reducing price volatility and making it easier for investors to buy or sell shares without drastically impacting the stock’s price.
This factor can dramatically affect the performance and valuation of a company’s stock and can impact an investor’s decision to either invest or divest in a company.
Explanation
Floating Stock is a term in finance that refers to the number of shares available for trading of a particular stock. Unlike the outstanding shares, which refer to all the shares of a company including those held by institutional investors and company insiders, the floating stock only covers shares held by the general public. These shares “float” in the market and can be bought and sold without direct influence by the company.
The primary purpose of floating stock is to give an insight into the stock’s liquidity and the general public’s perception of the company’s worth. The size of a company’s floating stock can impact the stock’s volatility and price. A smaller float can lead to more volatile prices as less shares are available for trading.
This can potentially inflate the price of the stock disproportionately. On the other hand, large floats often correspond to established companies, reducing the likelihood of volatile price swings due to the sheer volume of shares available for trading. Investors often use floating stock as one of the factors to make investment decisions.
Examples of Floating Stock
Apple Inc.: As of September 2021, Apple Inc. has approximately
91 billion shares of floating stock (shares available for public trading). They use these shares for different financial operations and provide opportunities for their investors to have a stake in the company.
Microsoft Corporation: Microsoft is another example of a company with a significant amount of floating stock. As of September 2021, Microsoft had about
49 billion shares in its float. Publicly traded shares of Microsoft are bought and sold on the open market, which influences its share price.
Amazon Inc.: Amazon Inc. provides another real-world example for floating stock. As of September 2021, the company has around 504 million shares of floating stock. Amazon’s investors, through their collective buying and selling activity, determine the price of these shares based on their perceptions about the company’s present and future worth. It’s noteworthy that floating stock numbers can fluctify as companies can buy back their own shares or issue new shares.
Frequently Asked Questions about Floating Stock
1. What is Floating Stock?
Floating stock refers to the number of shares available for trading of a particular stock. It’s calculated by subtracting closely-held shares and restricted stock from a firm’s total outstanding shares.
2. Why is Floating Stock important?
Floating stock is significant because it indicates the stocks that are available for the public to trade. Companies with larger float tend to have better liquidity because there are more shares to trade, hence narrower bid-ask spread.
3. How is Floating Stock calculated?
Floating stock is calculated by subtracting the closely-held shares and restricted stock from a company’s total outstanding shares. It gives the amount of stock that is available for public trading.
4. What is the difference between Floating Stock and Outstanding Shares?
Outstanding shares are all the shares a company has issued, while floating stock is the portion of those shares that are available for trading by the general public. The difference comprises closely held shares and restricted stock.
5. Does Floating Stock change over time?
Yes, floating stock can change over time. It can increase if the company issues additional shares or if company insiders sell their shares. It can decrease if the company buys back its shares or if insiders buy more shares.
Related Entrepreneurship Terms
- Outstanding Shares
- Shareholders
- Public Float
- Market Capitalization
- Insider Holdings
Sources for More Information
- Investopedia: A comprehensive online resource dedicated to empowering the world to invest. They offer comprehensive definitions and explanations of various financial terms and concepts, including Floating Stock.
- MarketWatch: A leading investor news resource that constantly delivers up-to-date information on market data, finance news, and personal finance advice.
- Financial Times: A global business publication that offers news, analysis and comment from the financial world, including topics like Floating Stock.
- The Wall Street Journal: A well-regarded source for financial news, providing in-depth coverage on a wide range of financial topics, including definitions and discussions on terms like Floating Stock.
