Free float refers to the number of a company’s outstanding shares that are readily available for trading in the open market. These are the shares not held by insiders, founders, or other strategic shareholders who are unlikely to sell regularly.
In simpler terms, free float is the portion of a company’s stock that is actually “in play” — available for investors to buy and sell on public exchanges. It excludes shares that are locked up or otherwise restricted.
Free float is not the same as market capitalisation. Two companies with similar market caps can have very different trading characteristics if their floats differ significantly.
Free Float vs Shares Outstanding
While free float and shares outstanding are often mentioned together, they represent different concepts. Understanding the distinction is essential for interpreting trading volume, volatility, and stock performance.
Shares Outstanding
This refers to all of a company’s issued shares, including:
Shares held by company insiders (executives, founders)
Shares held by institutional investors with long-term positions
Shares available for public trading (i.e., the free float)
Free Float
This is a subset of shares outstanding—specifically, those available to the public for trading. It excludes shares with ownership restrictions or strategic holding purposes.
Real-World Example: Tesla (TSLA)
Shares Outstanding (approx.): 3.18 billion
Free Float (approx.): 2.9 billion
The difference? Shares held by Elon Musk and other long-term investors aren’t considered part of the float because they are unlikely to be sold in the open market regularly.
As you can see, while Tesla has a large total share count, a meaningful portion is effectively “locked up,” reducing the actual liquidity available to most traders.
How Free Float Affects Stock Behaviour
The size of a company’s free float can significantly influence how its stock behaves in the market.
From pricing efficiency to volatility and institutional interest, free float plays a central role in shaping the trading environment.
1. Liquidity
Stocks with a high free float typically have greater liquidity—meaning they can be bought or sold more easily without causing large price movements. This appeals to both retail and institutional traders.
By contrast, low float stocks may have wider bid-ask spreads and thinner order books, making it harder to execute trades at favourable prices.
Example:
Large-cap companies like Apple or Microsoft have high floats, allowing for heavy volume trading with minimal slippage. Conversely, smaller firms or those with founder-controlled ownership may have a much thinner float.
2. Volatility
Low float stocks often experience sharper price swings due to the limited number of shares available. Even relatively modest buying or selling pressure can cause significant moves.
Example:
Many biotech or small-cap tech companies have floats under 20 million shares. Positive news (e.g., clinical trial results) can send the stock soaring—while negative news can spark rapid declines.
3. Price Manipulation Risk
With fewer shares available, low float stocks can be more susceptible to manipulation by coordinated buying or speculative trading. This is one reason why regulatory bodies often monitor thinly traded stocks closely.
4. Index Inclusion Criteria
Major indices (e.g., S&P 500, FTSE 100) often require a minimum free float percentage. Companies with limited float—even if their market capitalisation is high—may be excluded, which affects demand and visibility.