What Is a Floating Stock?

Also known as floating shares, floating stock is a term that refers to the shares of stock issued by a given publicly traded company that are freely circulating in the marketplace and are available for immediate purchase. The presence of these shares in a secondary market is considered a sign of stability for the investment, indicating that the stocks carry a lower level of risk. This in turn affects the sale price of the shares, which may result in price movements that are more incremental and steadier than any large increases or decreases as the marketplace undergoes some sort of change in direction.

Companies track the amount of floating stock along with any other shares of outstanding stock that is currently in circulation. Stock of this type is somewhat different from other types of outstanding shares, such as restricted stock. With the latter, there may be shares available, but they can only be purchased by current shareholders, and even then sometimes only in limited quantities. Restricted stock may also carry additional requirements in order to be in compliance with governmental regulatory agencies that set the basis for the trading of stocks within a given country. By contrast, floating stock may be purchased by any investor, and may be sold as an even lot, or purchased as part of an odd lot of stocks.

There are several benefits associated with floating stock. One has to do with the relative stability of the shares. Stocks that usually have a number of shares offered for sale in the marketplace tend to be somewhat less volatile, meaning that investors assume less risk when choosing to purchase those shares. While the returns on these shares may not be spectacular, those earnings do tend to be consistent and steady. This makes securing floating stock an ideal option for investors who tend to be more conservative overall, or are attempting to diversify a portfolio with a balance between low-risk and high-risk stock holdings.

While the lower volatility that is usually associated with floating stock is a bonus for many, it is important to remember that investors should investigate the past and current performance of the shares very closely. This makes it easier to determine how the stock has performed in various types of markets in the past as conditions shifted. The date can be used to project how the floating stock will perform in both the short and the long term, given what experts are predicting will happen within the economy in general and the marketplace in particular.