Floating stock refers to the number of shares at hand for particular stock trading. When there is a low number of shares, the name is the low float stocks. The calculation of floating stock generates closely-held subtraction of shares and restricted stock from the firm’s total outstanding shares. Insiders, employees, and major shareholders own these closely-held shares. Meanwhile, the restricted stock is the insider’s shares that cannot be traded due to the temporal restriction. It is like what happens in the lock-up period after initial public offering.
This is how you could understand floating stock. A firm could own a huge number of shares outstanding. Shares outstanding means a company’s stock held by all its shareholders. This includes institutional investors’ share blocks and restricted shares from company officers and insiders. Although a company could have a lot of shares, their floating stock is limited. The scenario is like this: with 50 million shares, large companies just have 35 million shares.The 5 million is for the management and insiders. While the employee stock ownership plan only owns 2 million shares.
In a nutshell, it only covers shares for as much as 8 million or 50 million shares minus 42 million shares. This is 16% of the outstanding shares. However the amount of it could rise or fall in a certain period of time. The rise and fall could happen due to many reasons. The epitome is like when a company sells additional shares to increase more capital. the floating stock as a result could increase as well.
On the other hand, when the restricted or closely-held shares are on hand, the floating stock could also decrease. There is also another reason why the floating stock could decrease. When a company implements a share buyback, the outstanding shares will jump. In this method, the floating shares’ percentage could also decrease.