Float in a stock is the number of shares of a company that is currently trading publicly on the exchange and is available for traders and investors to buy and sell. The stock float is calculated by taking a company’s total issue of outstanding shares and subtracting any restricted stock. Pre IPO investors, employees and founders can’t sell their restricted shares because they can be in a lock-up period for a time following the IPO usually between 90-180 days.
Executives and insiders many times can also be restricted from selling shares around earnings announcement dates. This occurs when an insider could have knowledge of information not public yet where the sale of shares could be considered insider trading in a legal sense.
A company’s float is an important metric to show the liquidity of shares for a company. It can show the supply of shares on the open market and give a clearer view of supply and demand. Share float is the shares traded on the stock exchanges and price is disconnected from the company itself benefitting. Share float is changed when a company issues more shares in a secondary offering increasing the amount available to trade once sold. Share float is decreased during share buy backs as the company uses capital to purchase shares on the open market and retire them lowering the amount available for traders and investors.
A company issuing stock options doesn’t affect share float. The options market are derivatives and they also don’t affect the amount of share float.
There is usually an inverse correlation between the amount of share float and volatility in price. The higher the number of shares for trading, the lower the volatility will be as it is more difficult for a small position size to move the price. A smaller share float can both be more volatile with movement being more sensitive to size and volume and the stock price can also trend stronger when under accumulation or distribution.