Free Float
Free float is the portion of a company’s shares actually available for public trading: total shares outstanding minus stakes locked up by founders, insiders, governments, and strategic partners. Index providers and liquidity desks work from the float rather than the headline share count, because the float determines how much stock can genuinely change hands.
The math
A company has 100 million shares outstanding, and its founders plus a strategic investor hold 40 million between them. The float is 60 million shares.
At $50 per share, total market capitalization is $5 billion, but float-adjusted capitalization is $3 billion, and that lower figure is what most major indexes use to set the company’s weight. The difference bites on execution too: a fund building a $30 million stake owns 1 percent of the tradable float, not the 0.6 percent of the company the headline numbers suggest.
| Headline | Float-adjusted | |
|---|---|---|
| Shares | 100M | 60M |
| Capitalization at $50 | $5B | $3B |
| A $30M stake owns | 0.6% | 1% |
Its footprint in the shares that actually trade is nearly twice what it appears.
The trap
Low float plus a hot narrative equals violent price action. When only a sliver of a company trades, modest buying sends the stock vertical and modest selling collapses it, so quoted prices can be an illusion of what an exit would fetch.
Short squeezes, lockup expirations, and secondary offerings all hit low float names hardest, and holders discover the liquidity problem precisely when they want out.
The move
Check the float before sizing any position, especially in smaller companies. Compare average daily dollar volume to your intended stake and decide in advance how many days an exit would take.
Read insider concentration both ways: alignment when founders hold through thick and thin, overhang when a lockup expiry or a planned selldown sits on the calendar.