Investing Q&A of the Day: Float

Investing Q&A of the Day: Float

The Beginner Trader

What is a stock’s “float”?

A stock’s float refers to the amount of outstanding shares that are available for trade (buy/sell). To determine the amount of outstanding shares a company has, you can do a quick search on Yahoo Finance. THIS LINK will take you the Yahoo Finance “Statistics” page for the Coca Cola Company, stock symbol $KO. If you scroll down to the “Share Statistics” you will find the float. I have highlighted for you in the image below. 

 

Highlighting where to find a stock's float.

The “floating” stock is calculated by subtracting closely-held shares (insiders, major shareholders, employees) and restricted stock that may arise from an IPO.

Why does float matter?

Depending on your trading strategy, you will want to narrow your searching by float. In my day trading strategy I look for companies with less than 30-50 million shares. While that sounds like a lot of shares, that would be considered a low float stock. You can see in the example above that $KO has almost 4 billion shares of float, which is very high.

In my day trading strategy I am looking for stocks that are moving quickly in one direction or another. A stock with less shares will be more volatile than a stock with lots of shares. This is simply due to the dynamic of supply and demand. If a low share, low cost stock has good news in the morning, lots of traders will pour into that stock, and since there isn’t as many outstanding shares, the price of the stock will fluctuate wildy in the first hour of the morning. Riding that volatility is where you can make (or lose) money in a short amount of time. 

If you’re looking at a stock as more of a long term investment, float may not matter as much in your calculations. You would be looking at other fundamentals like ROIC, PE Ratios, ROA, etc. 

To learn more about stocks and investing be sure to follow me on twitter @cchapeton.