As a day trader, it’s important to understand various stock market terminologies, including stock float. Float refers to the number of shares available for trading in the market after removing the closely held shares from the total shares outstanding. In simple terms, it represents the number of shares that are available to the public for trading. In this blog post, we’ll explain what stock float is, its importance for day traders, and how float affects trading. Additionally, we’ll provide a few examples of companies with different floats.
Importance of Knowing the Float for Day Traders
As a day trader, it’s essential to have accurate information about the stock float because it affects your trading decisions. A high float indicates that the stock has a lot of shares available for trading, which can limit the price movement. On the other hand, a low float indicates that there are fewer shares available for trading, which can create opportunities for price movement. Therefore, understanding the float can help you make better trading decisions and increase your chances of profitability.
Examples of Companies and Their Floats
Let’s look at a few examples of popular companies and their floats. Apple Inc. (AAPL) has a float of around 17.1 billion shares, while Amazon.com Inc. (AMZN) has a float of around 425 million shares. Facebook Inc. (FB) has a float of around 2.4 billion shares, while Tesla Inc. (TSLA) has a float of around 1.1 billion shares. As you can see, the float varies greatly among different companies, indicating their market capitalization, share structure, and popularity.
What Determines a Stock’s Float?
To calculate the float, we subtract the closely held shares, such as those held by insiders, from the total shares outstanding. Factors such as restricted shares held by insiders and employees, share buyback programs, secondary offerings, and stock splits can affect the determination of the float. For example, if a company repurchases its shares, the total shares outstanding decrease, and the float increases. Similarly, if a company issues more shares through a secondary offering, the total shares outstanding increase, and the float decreases.
How Does Float Affect Trading?
The float affects trading in several ways. Firstly, the float determines the liquidity of a stock, which refers to the ease of buying and selling the stock. A high float stock has high liquidity, meaning you can quickly buy and sell shares without affecting the stock price. Secondly, the float can create opportunities for price movement. A low float stock is more volatile, meaning it can experience significant price movement both upwards and downwards. Lastly, traders should consider float when choosing their trading strategies. For example, a scalper with a short-term trading approach may prefer a low float stock because of its volatility.
Examples of Companies with Different Floats
Let’s explore an example of a large cap company with a high float: Bank of America (BAC). As of July 2021, BAC has a float of around 8.9 billion shares, which is higher than other large-cap companies like JPMorgan Chase (JPM) and Wells Fargo (WFC). BAC’s high float means that it has significant liquidity and stability, making it a less volatile investment. Additionally, BAC’s float has been increasing in recent years due to its share buyback program, which reduces the total shares outstanding and increases the float.
In conclusion, understanding stock float is crucial for day traders because it affects trading decisions, creates opportunities for price movement, and increases liquidity. Traders should pay attention to factors that affect float while selecting their trading strategies. Large-cap companies like Bank of America have high floats, indicating stability, while smaller companies with low floats can be more volatile. By understanding the float and its impact on trading, day traders can make informed decisions to improve their profitability.
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