A company’s “float” is a term that refers to the ordinary, public shares that a company makes available to investors to trade. This is a crucial number for possible investors to know before they purchase stock because it shows just how many shares are available for general-public trading at a given time.

A company’s float can be calculated quite easily, by subtracting the number of shares it has under some sort of trading restriction (restricted stock shares) – often put in place by the Securities and Exchange Commission (SEC), or already issued and purchased by employees, officers, directors, and other insiders – from the total number of shares the company is authorized to issue to the public and that have not yet been purchased (outstanding shares). In other words, outstanding shares minus restricted stock shares.

Many companies begin with an initial float, or the number of shares its management and shareholders deem appropriate to make available for general trading when the company first goes public.

It is important to note that there is a direct relationship between a company’s float and the relative stability or instability of the price of that company’s stock. In other words, the larger the number of the company’s float, or the greater the number of shares it makes available for public trading, the more stable the price of that company’s stock will be. For example, a company with only 10,000 shares in its float would most likely have stock with a more variable price than a company with 10 million shares in its float. It is essential to understand the concept of a company’s float before purchasing securities in order to gauge how susceptible a stock might be to dramatic drops or rises in value.