What is a float?

In investing, ‘float’ has two closely related meanings.

1. Floating a company

When a company floats, it lists its shares on a stock exchange so the public can buy and sell them. It’s another way of saying the company is going public, usually through an IPO.

2. Free float

A company’s free float is the portion of its shares that’s actually available to trade on the open market. It leaves out shares held by insiders such as founders, directors, governments, or major long-term shareholders, and anything tied up in a lock-up period. So a company might have 100 million shares in total, but if 70 million are held by the founders, the free float is just 30 million.

Why free float matters

• Liquidity. A bigger free float usually means more shares changing hands, which can make it easier to buy and sell
• Price swings. A small free float can make a share price jumpier, because more investors are chasing fewer shares
• Index inclusion. Some stock market indices weight companies by free float rather than market capitalisation, and major index providers require a minimum free float to qualify for inclusion

Exchanges set rules on this too. Companies listing on the London Stock Exchange’s main market currently need at least 10% of their shares in public hands.

Related terms: IPO, Lock-up period, Direct listing