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What is Stock Float in share market?

10 Mar 2022 0 COMMENT

Stock float is the number of shares of a company that is available to trade in the market. The formula to calculate stock float is:

Stock float of a company = Outstanding shares of a company - restricted stock of a company

Shares outstanding= Total number of shares held by all shareholders. It includes all the shares that a company has issued. The number of outstanding shares is generally mentioned in a company’s balance sheet.

The restricted stock of a company is the stock of a company that cannot be traded like promoter’s stake, institutional investors, stocks lying in lockin period, etc.

Assume company ABC ltd has 50 lakh outstanding shares out of which, 10 lakh are restricted shares. So the shares that are available for trading are the outstanding shares-restricted shares. 50 lakh – 10 lakh = 40 lakh shares are available for trading. This number is only for a particular period. The floating stock of a company can increase or decrease in the future.

The stock’s float is normally denoted as a percentage of the company’s total stock. In the above-mentioned example out of 50 lakh shares which is the company’s total stock, 40 lakh are available for trading. This means that the company’s float is 80%.

If a company has few shares available to trade in comparison to the total outstanding shares, it has a low float. Companies whose higher number of shares are readily available to trade have a higher float.

Low float stocks

A low float means that out of a company’s outstanding stock available only a very small percentage is available to trade. In the above example, out of 50 lakh outstanding shares, if 30 lakh were restricted stock, only 20 lakh shares will be available for trade that day. The company’s float is 40%. This is a low float. A low float has its advantages and disadvantages. A low float stock means that it is not easily available in the market and it might be difficult for you to sell this stock later on. A low float can also mean that majority of shares are held by few investors of the company. If the majority of the company’s shares are held by promoters, it means that the management will act in the company’s best interest and stock will command a premium in the market.

High float stocks

The company’s float can never be higher than the outstanding shares as the float is only part of the outstanding shares. A company can increase the number of outstanding shares available or sell the promoter’s stake to increase the float. As an investor, you might prefer high float stocks as they have high liquidity in the market and you will have an easier time selling them.


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Conclusion:

Stock float lets you know how much of the company’s shares are available in the market to trade in and also lets you know how easy it is to sell the stock. It also lets you know how much of the company’s shares are owned by the company’s insiders so that you can make easy investment decisions.

Disclaimer – ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.