What does float mean in stocks? A stock’s float is the number of shares 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 outstanding shares.
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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. They are very volatile and have bigger moves. Higher floats 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 supplies available—hence, the importance of share count and knowing what float means in stocks. Knowledge is power.
The shares held by insiders, employees, and major shareholders are known as closely held shares. These closely-held shares are not shares that are being traded daily. So, the fact that they are being held makes a company’s “float” lower depending on how many are held by the “insiders.”
You may see those closely held shares joining the float if the price is right. However, a company’s float is important to investors because it allows them to see how many shares the public can buy and sell.
The float doesn’t affect a company unless they add more shares into distribution, known as an offering. The stock is there to be 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, hurting the company. If that happens, there are often bigger problems afoot.
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Does Stock Float Change?
The float does not change daily, but it can change occasionally. Some companies do “offerings” and dilute the amount or increase the number of shares the general public holds. 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 is announced.
Example
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.
I prefer 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 quickly. Watch the volume and the price action and trade quickly.
Again, the stock price 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.
Here, $ARAV added shares to their float in a secondary offering (to raise money). See how the price tanked and then recovered?
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.
Price Movements
When asking what float means in stocks, you must 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 for a stock. And thus, volume shoots up; supply is low, so the stock price goes up fast. So, what about high float stocks?
When a stock has a high float, many shares are available. When there are a lot of shares to go around, everyone can get the stock. That’s not necessarily a bad thing, although it does mean that the price will most likely move more slowly compared to a much lower float.
The sweet spot between volatility and price action 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 floats and have the right expectations when you do.
Penny Stocks
Low float stocks are a whole different animal, especially when you trade penny stocks. When the stock has a low float, there aren’t many shares to trade. So, when the demand for 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, there is a tug-of-war between buyers and sellers. 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. It would be best if you had volume to push the price in the direction you want it to go. A low float stock with no volume means it’s not going anywhere.
Day trading strategies often require low float, volume, and volatility. Low float momentum stocks are the bread and butter of day trading.
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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 are crucial. We try to instill that in our members with our videos and streams. We want to keep you safe!
Traders pay close attention to it. You could blow up your account if you’re going long and buying at resistance. 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 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.
Final Thoughts: What Does Float Mean in Stocks?
What does float mean in stocks is an important question to ask before you trade. The lower the float, the more volatile it is when the volume explodes 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 and technical indicators to take advantage of them.
