How to Check Free Float of Shares

Understanding the free float of shares is crucial for investors looking to gauge market liquidity and stock volatility. Free float refers to the portion of a company’s shares that are available for trading by the general public. Unlike shares held by insiders, which are typically restricted from trading, free float shares are those that are readily accessible on the market. This article will guide you through the process of checking the free float of shares, why it matters, and how you can leverage this information for better investment decisions.

Step 1: Understand the Concept of Free Float
Before diving into the details of how to check the free float of shares, it’s essential to grasp what it means. Free float is the number of shares that are available for trading in the open market. This excludes shares held by company insiders, such as executives, directors, and employees, as well as those held by large institutional investors or strategic partners who might not trade their shares frequently. The free float provides insight into the stock’s liquidity and how easily it can be traded without affecting its price significantly.

Step 2: Identify Sources for Free Float Data
Several resources can help you find the free float data for a particular stock. Here are some common sources:

1. Company Filings: Companies often report their share structure in their annual reports or regulatory filings. Look for the section on share capital or ownership structure.

2. Financial News Websites: Websites like Bloomberg, Yahoo Finance, and Google Finance provide data on the free float as part of their stock information.

3. Stock Exchanges: Many stock exchanges provide detailed stock information, including free float, in their market data sections.

4. Brokerage Platforms: Many brokerage platforms offer detailed stock data, including free float, as part of their research tools.

5. Financial Databases: Services like FactSet, Thomson Reuters, and Morningstar offer comprehensive financial data, including free float, but often require a subscription.

Step 3: Calculate the Free Float
If you cannot find the free float directly from the sources mentioned, you can calculate it yourself. Here’s a simple formula:

$\text{Free Float}=\text{Total Shares Outstanding}-\text{Restricted Shares}$Free Float=Total Shares Outstanding−Restricted Shares

Example Calculation:
Let’s say a company has 1 million shares outstanding and 200,000 shares are held by insiders or are otherwise restricted. The free float would be:

$\text{Free Float}=1,000,000-200,000=800,000\text{ shares}$Free Float=1,000,000−200,000=800,000 shares

Step 4: Analyze the Impact of Free Float
The free float of shares can impact a stock’s liquidity and volatility. High free float usually indicates that a large number of shares are available for trading, which can lead to higher liquidity and potentially lower volatility. Conversely, a low free float might mean that fewer shares are available for trading, which can result in higher volatility and price swings.

Step 5: Use Free Float Information in Investment Decisions
Investors use free float data to assess the potential impact of large trades on stock price. For example:

1. Liquidity Analysis: Stocks with a high free float are generally more liquid, making them less susceptible to price manipulation and easier to buy or sell without large price changes.

2. Volatility Assessment: Stocks with a low free float may experience more significant price swings, which can be both an opportunity and a risk.

3. Market Sentiment: Changes in the free float, such as large insider sales or new institutional investments, can signal shifts in market sentiment or company outlook.

Conclusion
Understanding how to check the free float of shares and its implications can significantly enhance your investment strategy. By leveraging this knowledge, you can make more informed decisions about the stocks you choose to trade or invest in. Always remember to consider free float as one of several factors in your analysis to get a comprehensive view of a stock’s potential.