what is free float methodology 
the free float methodology is a method of calculating the market capitalization of a stock market index s underlying companies with the free float methodology market capitalization is calculated by taking the equity s price and multiplying it by the number of shares readily available in the market rather than using all of the shares both active and inactive shares as is the case with the full market capitalization method the free float method excludes locked in shares such as those held by insiders promoters and governments understanding free float methodologythe free float methodology is sometimes referred to as float adjusted capitalization according to some experts the free float method is considered to be a better way of calculating market capitalization as opposed to the full market capitalization method for example full market capitalization includes all of the shares provided by a company through its stock issuance plan companies often issue unexercised stock to insiders through stock option compensation plans other holders of unexercised stock can include promoters and governments full market capitalization weighting for indexes is rarely used and would significantly change the return dynamic of an index because companies have various levels of strategic plans in place for issuing stock options and exercisable shares the free float methodology is usually thought to provide a more accurate reflection of market movements and stocks actively available for trading in the market when using a free float methodology the resulting market capitalization is smaller than what would result from a full market capitalization method an index that uses a free float methodology tends to reflect market trends because it only takes into consideration the shares that are available for trade it also makes the index more broad based because it lessens the concentration of the top few companies in the index 