why floating stock is important
a company s float is an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public low float is typically an impediment to active trading this lack of trading activity can make it difficult for investors to enter or exit positions in stocks that have limited float institutional investors will often avoid trading in companies with smaller floats because there are fewer shares to trade thus leading to limited liquidity and wider bid ask spreads instead institutional investors such as mutual funds pension funds and insurance companies that buy large blocks of stock will look to invest in companies with a larger float if they invest in companies with a big float their large purchases will not impact the share price as much special considerationsa company is not responsible for how shares within the float are traded by the public this is a function of the secondary market therefore shares that are purchased sold or even shorted by investors do not affect the float because these actions do not represent a change in the number of shares available for trade they simply represent a redistribution of shares similarly the creation and trading of options on a stock do not affect the float example of floating stockas of september 2023 general electric ge had 1 088 billion shares outstanding 1 of this 0 20 were held by insiders and 75 81 were held by large institutions 2 therefore a total of 76 or 830 million shares were likely not available for public trading the floating stock is therefore about 260 million shares 1 088 billion 830 million it is important to note that institutions don t hold a stock forever the institutional ownership number will change regularly although not always by a significant percentage falling institutional ownership coupled with a falling share price could signal that institutions are dumping the shares increasing institutional ownership shows that institutions are accumulating shares 