All About Low Float Stocks

All About Low Float Stocks

Trading in low float stocks can be risky as they are more volatile than stocks with a larger float. It may be more challenging to sell or buy with fewer stocks to trade, resulting in larger spreads and lower volume.

What is considered a low float stock?

Low float stocks are the number of shares available for trading a particular stock, usually with a low number of shares. Floating stock is calculated by subtracting closely-held shares (held by insiders and major shareholders and employees) and restricted stock from an outstanding firm share.

Usually, a low float stock is the total amount of shares between 10 million and 20 million.

These low float stocks can yield significant returns, which can move quickly based on announcements and news events.

How Low Float Stocks Work

Stock Float means the numbers of shares available for the public to trade and does not include insider holdings or restricted shares.

For most companies, not all stocks are available to trade on the public market. Many companies give employees shares as incentives or in lieu of pay or as bonuses.

These shares are not available to trade until they “vest.” Essentially insiders have to hold the stock for a certain period before they are allowed to trade. This can indicate that a stock’s float is smaller than its market capitalization.

Float can be concerning for traders who look ideally for liquidity in the stocks they trade. Banks, hedge funds, mutual funds, and insurance companies tend to hold longer and cannot trade as quickly as individual investors.

When institutions own most of the float, the stock price is less volatile.

How to find low float stocks

You can do research and find low float stocks by looking at a firm’s balance sheet in the shareholder equity section. This will highlight the company’s total shares, and how many of those shares are floating.

Some stock screening software allows you to filter to find stocks with low float. This is useful for people looking for fast gains like day traders.

Traders looking for larger positions or looking for more long-term holds should typically shy away from low float stocks. The sparse activity makes it tough to enter or exit at a reasonable price.

Low float stocks are ideal for day traders looking to earn substantial gains in a short amount of time.

Trading with low float stocks

There are a few key takeaways when you are looking to trade with low float stocks. Be sure to do your research and look at the total number of shares subtracting the number of closely held and restricted shares.

Always start small to reduce your risk while you get the hang of trading with float stocks.

Try to avoid holding low float stocks overnight to try to avoid big swings. When you invest in low float stocks, always have a solid exit plan with a stop-loss price.

Low float stocks can be profitable for traders who want to make profits within the day. The volatility and price swings can be beneficial and can be risky.

Did you know?

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Check out our Course Academy to see how you can learn how to develop into the trader you’ve always wanted to be.

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