What is a stock's float?
A stock's float is the number of its shares that are free to trade in the market. It is the supply that buyers and sellers actually fight over on any given day.
Not every share a company has issued is part of the float. Shares held by founders, officers and directors, by large long-term holders, and shares that are locked up or restricted from sale usually sit out of the market. Take them away from the total and what is left is the float.
For day traders, float matters because of supply and demand. When a lot of buyers show up at once, a stock with a large float has plenty of shares to absorb them, and the price moves a little. A stock with a small float has few shares available, and the same wave of buyers can push the price a long way. That is why many small-cap traders look at float before almost anything else.
The rest of this guide covers how float differs from shares outstanding, why low float stocks move the way they do, how traders use float in a scan, and the risks that come with the speed.
Float vs shares outstanding
The two numbers are related, but they answer different questions.
- Shares outstanding are all the shares a company has issued and that are held by someone, insiders included. It is the number used to compute market cap.
- The float is the part of those shares that can trade. It leaves out shares held by insiders and other holders who are not expected to sell, and shares restricted from sale.
A made-up example: company A has 30 million shares outstanding. Its founders and officers hold 12 million, and another 6 million were issued in a private deal and can't be sold for six months. Its float is about 12 million shares, 40% of the shares outstanding.
Two related terms come up often:
- Short interest is the number of shares that traders have sold short and not yet bought back, often shown as a share of the float. A high short interest on a low float means many short sellers may need to buy back from a small supply, which can add fuel to a move.
- Days to cover divides short interest by the average daily volume: how many normal days it would take short sellers to buy back. On a small cap trading many times its usual volume, that number can change quickly.
Float figures come from company filings and data providers, and they don't all compute them the same way. Two sources can show different floats for the same stock, and both can lag a recent change by days or weeks.
Why low float stocks move so fast
A low float is not a reason for a stock to move. It is what makes the move large when there is a reason.
Most big moves in small caps start with a catalyst: earnings, a contract, a trial result, a filing. The news brings buyers. On a stock with 200 million shares in the float, those buyers meet a deep pool of sellers. On a stock with 5 million, they can buy a large share of the whole float in a single morning. When the volume traded in a day reaches a multiple of the float, every share has, on average, changed hands several times, and the price has to move a long way to find new sellers.
That is why low float stocks show up so often among the biggest gainers of the day, and why they are also among the biggest losers. The thin supply works in both directions: when buyers step away, there are few bids underneath, and the price can drop as fast as it rose.
Volume is what tells you whether the attention is there. A low float stock trading a normal amount is just a quiet stock. A low float stock trading many times its usual amount, with a high RVOL, is one with real demand behind it; the guide to relative volume explains how that is measured.
How traders use float in a scan
Most momentum traders don't trade float on its own. They use it as one filter among a few, to narrow a list of moving stocks down to the ones where supply is tight. A common premarket scan for small caps looks something like this:
- Gap or % change. A stock already moving, commonly 10% or more; the premarket gap scanner guide covers the settings.
- Price. A range that fits the trader's account and rules, often from about 1 to 20 dollars.
- Relative volume. Well above normal for the time of day.
- Float. Under a ceiling, often 10 to 20 million shares, sometimes much lower.
Traderly's scanner has Float as a filter, and its company panel shows a stock's float and the share of its shares outstanding that it represents. Its market data is delayed 15 minutes, so it is a tool for building your list before the open and for reviewing what low float stocks did in replay, not for timing an entry as it happens.
Many traders also look at float together with the setup they trade. In a gap and go, a low float is one of the reasons a gap can keep going after the open, and one of the reasons it can fail just as quickly.
The risks of low float stocks
The speed that draws traders to low float stocks is also where most of the risk comes from.
Dilution and share offerings. A small company whose stock just ran is often a company that needs cash. Selling new shares into the move is one of the most common ways to raise it, through a registered offering, an at-the-market program that sells shares gradually, or warrants and convertible notes that turn into stock. New shares grow the float, add supply right when buyers are fading, and can turn a run into a sharp drop in minutes. Filings with the SEC, such as a shelf registration, are worth checking before the open.
Halts. When a stock moves too far too fast, US exchanges pause trading for a few minutes. Low float stocks hit these pauses often. A halt can freeze a position that is moving against you, and the stock can reopen far from where it stopped, on either side.
Spreads and fills. With few shares on offer, the gap between the best bid and the best offer can be wide, and a market order can fill far from the last price. A plan that looks clean on a chart can cost much more in a real account.
Stale float data. Because providers update float with a delay, a stock that has just issued millions of new shares can still show its old, small float. A low float on your scanner is a starting point, not a fact to trade on.
None of these risks make low float stocks untradeable, and many traders build their whole approach around them. They are the reason size, stops and a daily loss limit matter more on these stocks than on almost any other.
How to learn how low float stocks behave
Low float stocks are hard to learn on the fly: by the time you understand what happened, the move is over. Watching many of them, open after open, including the ones that faded, is what builds a sense of how they trade.
A few things worth noting, session after session:
- How the stock traded when the volume reached the size of its float.
- What happened after the first halt of the day.
- Whether a filing appeared, and how the price reacted.
- How wide the spread was at the open compared with an hour later.
Doing that on past sessions, without money at risk, is what the guide to practicing day trading is about.