Floating stock: Definition of floating stock in the capital market
Floating stock is a percentage of the number of shares of the company held by a minority shareholder (less than 5%). Free float stocks belong to investors whose purpose in buying and selling stocks is to make a profit and they do not intend to manage the company with the number of shares they have. All natural or legal persons who own more than five percent of the shares of that company are called major or strategic shareholders who do not intend to transfer their shares in the short term. For example, suppose a company is to be listed on the capital market and, according to the necessary arrangements, must offer 10% of its shares in the market so that buyers can buy the company’s shares on the day of the initial public offering. Therefore, out of 100% of the company’s shares, 10% of it is currently a floating stock of the company. Now, if the main shareholder of the company sells his shares in the coming days, he has somehow increased the floating of the company’s shares.
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The best percentage of free float is what percentage
Percentage of free float stocks as an effective factor in increasing liquidity, depth and efficiency of the market. As the amount of shares in the hands of individuals increases, so does the possibility of price manipulation and the risk of stock liquidity. The low percentage of shares in the hands of the people indicates that a small number of shares of the company are available and as a result the probability of price deviation from the fair price is high. In companies that have low capital and on the other hand the buoyancy rate of the company is low, the probability of speculation in the share and raising the price is high. Because some people with high liquidity accumulate floating stocks in the share and easily increase the share price. Therefore, its amount must be considered.
What is the effect of free float on stock prices?
In general, there is a close relationship between the company’s free float and on the other hand, speculation in shares and stock price changes. In explaining speculation and ways of speculating in shares, the amount of company capital should be considered first. Of course, it should also be borne in mind that companies with low capital generally have a high potential for future price growth, but the risk of these companies is also high. In fact, it should be said that profit changes in companies with less capital are high, and for larger companies, the process is the opposite, ie less potential and less risk. Now consider that every investor should choose these companies according to their level of risk.
Assume the amount of free float in the stock market and its relationship to price changes; The company’s capital is 10 billion (the total number of shares of this company is 100 million shares) and the price of each share of this company in the market is 300 Tomans. The company has a 10% buoyancy, which is equivalent to 10 million shares. Several investors have agreed to increase the share price, and to this end they are trying to slowly remove the entire buoyancy of the company from the market. In this case, assuming the total float is about 3 billion tomans of capital is needed. Do you think this is impossible? When a large part of the stock buoyancy has accumulated, investors spread positive news about the market share and encourage other investors to buy the stock, and the share price easily rises because there is no other supplier in the market as the share price rises. And the whole buoyancy of the share had already been accumulated.
The amount of free float shares of listed companies
The amount of floating stock varies for companies and as we explained at the beginning of the discussion, the percentage of floating stock of companies depends on the initial public offering and the amount of sales of the major shareholder in the secondary market. For listed companies, the percentage of their free float shares is shown on the symbol page on the tsetmc site, but for over-the-counter companies, this percentage is not known, and the percentage of over-the-counter shares is announced at 3-month intervals. In the figure below, the free float of the company is 41%. Of course, after a while in the market and buying and selling stocks, you will be able to identify the right amount of floating stocks in the market. For example, in the figure below, the company has 100 million shares, 41% of which are floating. In fact, the number of floating shares of this company is 41 million shares. The floating stocks of companies are not always the same because the main shareholders of the company may sell their shares in the market when the share price rises and therefore increase the amount of their floating stocks in the market. As shown in the figure above, floating stocks change their percentage over time.
What is the minimum free float?
We said that the amount of floating shares of companies may increase and decrease over time, and on the other hand, in the definition of free floating shares, we mentioned that floating shares are a percentage of the number of shares of the company held by a minority shareholder (less than 5%). Therefore, the minimum amount of free floating shares of companies can be 5%, but there is no maximum for it, because a major shareholder can sell all his shares in accordance with certain rules and conditions in the form of retail supply in the market, and so on. Increase the buoyancy of the company’s stock.
Floating stock and its effects on share price
The more floating stock a company has, the less price manipulation it becomes because it becomes more difficult to play the stock and raise its price artificially. Also, you can’t make rumors about these stocks, confuse people and create the illusion that the price of this stock will increase, and then sell the stock and leave it. But a company that is small and has a floating share is easily priced. Of course, keep in mind that the share buoyancy may be 10%, but 100 billion tomans are needed to collect the buoyancy, and the corporate buoyancy is 20%, and 30 billion tomans are needed to collect it. So it is clear that speculation in a company with a buoyancy of 20% is easier in this example. Therefore, one recommendation is that if one does not know anything about the market, go to large companies with free-floating stocks and only with the initial entry into the stock market, to stocks that are small in terms of market and the possibility of speculation in it is high. Is not to go. Such things are more about billboards and stock market reading that investors will be able to learn trading techniques in the stock market.
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