What is public float and why does it matter in terms of liquidity, volatility and other key areas? To understand, it's essential to be aware that listed companies use a share structure that meets their needs, which means that not all of their shares may be available for trading or purchase.
The public float meaning is crucial to understanding how the market moves, as it tells us how many of their shares are freely tradeable at any given time. Traders need to know about a company’s public float, as it determines a number of areas including liquidity, volatility, spreads and price sensitivity.
Public Float Definition and How It Is Calculated
So, what is the public float meaning in real terms when you carry out stock trading? The public float of a company isn’t always the same as its total number of shares.
To understand this, we need to start with the meaning of the company’s shares outstanding, which is the total number of all shares issued that are held by shareholders. The market capitalisation is the monetary value of these shares. This is also covered in our Stock Market Basics guide.
The easiest way to calculate the public float is to subtract any restricted shares from the total shares outstanding. It can never be higher than the market cap, and is usually lower.
These restricted shares are typically held by the major shareholders or insiders, like the founders. They might also be stock that was given to employees as a reward, but that can’t be sold by them until a certain date is reached. Some companies also give blocks of stock to directors or others, under strict conditions.
This is important because the public float definition tells us specifically how big the tradable market is. For the purposes of trading, the overall size of the company and the locked shares aren’t as important to us. However, you’ll want to take into account any locked shares that are going to be unlocked soon.
You can then calculate float market capitalisation, which is the number of shares that are freely available for trading purposes times the share price.
Public Float vs Shares Outstanding – Why the Difference Matters
Although both ways of measuring the size of a company are valid, public float and shares outstanding demonstrate different aspects of a company's share structure.
Shares outstanding refer to the total number of issued shares (including those that are restricted), whilst public float represents only the shares that are freely available to trade on the market.
We can see this most simply by looking at an example.
- Let’s say that a company has 500 million shares outstanding, but 200 million of their shares are restricted. This means 300 million shares are freely tradeable, making their public float 300 million shares.
- Because only 300 million shares are available to be traded, the stock may experience sharper price moves than a company with a public float of 500 million, where all shares are freely tradable.
- If the restricted shares were reduced to 100 million shares, making the public float 400 million shares, liquidity may improve and volatility may decrease.
This shows how the numbers can change quickly, since this is a dynamic calculation, traders should be aware of any upcoming changes to a company's share structure.
Liquidity and Volatility – The Role of Public Float
The matter of liquidity vs volatility is another area that needs to be considered. Liquidity is how easily and quickly shares on the market can be bought and sold, with stable prices. If there is a low level of liquidity, this means there is a thin order book and finding a buyer or seller will be more difficult and time-consuming.
Volatility tells us how quickly the price changes. There is a link between liquidity and volatility, since a higher level of liquidity usually means that the asset is less volatile. This ensures that purchases and sales are more easily absorbed.
If we consider the supply and demand issue of public float vs shares outstanding, we can see more clearly how this works. The public float is the actual supply available on the market. This tells us how many shares can be bought or sold.
If the demand increases, the lower level of supply may lead to a larger price increase. The same applies in a market where sellers dominate, as the lack of tradable shares can lead to the price falling more quickly.
This is why a large float market capitalisation can be one of the factors that keeps a share’s price stable. There is simply more supply of the stock and a greater market depth that absorbs the varying levels of demand more easily and lowers the possibility of big price swings.
Risk Management - How to Manage Liquidity During Volatility
Good liquidity management during volatility is needed to avoid being overly exposed to sudden moves. When you’re trading a low-float stock, high volatility can be particularly important. Thin liquidity conditions force you to take extra care over how you execute your trades.
A standard market order might lead to slippage, so using limit orders is the best way to stay in control of the price you pay or receive. This lets you put the price you’re comfortable with rather than having to accept one that has changed rapidly and no longer suits you.
Good trade execution means working out the price you believe is best, rather than chasing a fast-moving price. If you start chasing a volatile market, this often leads to buying the top.
Dynamic position sizing is also needed, since your risk level increases with more volatility. Your stop-loss distance is probably going to be greater, since you need to take the bigger price swings into account.
It makes sense to check the market depth before entering in volatile conditions. When there are relatively few shares on the market, any moves can have a much bigger effect, which could adversely affect you. Our Volatility Based Position Sizing guide gives you more tips on this subject.
Public Float and Liquidity FAQs for Traders
How Do You Find the Public Float in Stocks?
A public float in stocks refers to the liquidity or tradable shares. This can be found on many financial research sites, or you could check the company’s own quarterly and annual reports for this number.
How to Calculate Public Float Manually?
This is a simple calculation where you start with the total number of shares created. After that, you subtract all of the restricted shares that can’t be traded.
How Often Does a Public Float Change?
With some companies, this is a dynamic figure that changes regularly. Some of the reasons for this include lock-up periods expiring, share buybacks and secondary offerings.
How Does a Share Buyback Affect the Public Float?
When a company decides to buy back its own stock, those shares are typically retired from the market and may be held as locked treasury stock. This reduces the number of shares on the market and can lead to increased volatility due to the lower supply.
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