What are Low Float & High Float Stocks?
Financial Education Series
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Whether you have heard it before or not, knowing the difference between “low float” and “high float” is critical to your due diligence when making an investment in a company.
The “float” of the stock is referring to the shares outstanding that are able to be traded by investors. To do this calculation is simply the number of total shares outstanding minus the number of shares restricted/locked up (or cannot be sold readily).
This is important because price action and the movement of the stock price greatly revolves around the number of shares available to be bought or sold.
The more shares in circulation = The higher the float and thus the company share price is LESS volatile and susceptible to price swings. Easy examples of high float stocks are most blue-chip stocks such as $FB or $AAPL with a float of 4.33 Billion shares. To find this number you can easily just type in the stock ticker on Yahoo Finance and click on “Statistics”. Below is a photo outlining the share statistics of $AAPL where you will find the float data.
The fewer shares in circulation = The lower the float and thus the company share price is MORE volatile and susceptible to price swings. Good examples of low float stocks are penny stocks in which their float is somewhere around 20 million shares or less. Notice the difference between 4.33 billion and 20 million!
With fewer shares in play, this allows day traders to pump or dump the stock price more effectively and cause massive volatility swings. Like anything, when there is a low supply for something the demand is high. With penny stocks, this supply/demand factor can cause a pump to occur when a large percentage of the float shares are being bought quickly.
In conclusion, I personally stay far away from low float stocks. I am a long-term investor in companies that I believe in not for today or tomorrow but years down the road. Any company worth buying for the long term most likely will not have a low float!
Hope this helps,
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