Low float stocks have high volatility making them desirable to some but they can be scary to others because of the lack of available shares. If news breaks and the price falls, there is not much cushioning to help bring the price back up. The news strongly impacts this kind of stock because of its supply and demand ratios.
Keep reading on to find out what low float stocks are and whether or not it’s a potential investment for you. Because stock trading can take on so many forms, you need to know if float stocks are appropriate for portfolio.
As of June 2023, there were a little more than 550 low float stocks. These stocks are defined as stocks which have fewer than 20,000,000 shares trading and are subject to significant price swings.
These low float stocks tend to make up somewhere between 10% and 15% of the New York Stock Exchange, Nasdaq and OTC Markets stocks.
What is a Low Float Stock?
A low float stock is a stock with a low amount of outstanding shares available. Outstanding shares are shares that are not reserved or claimed. Float refers to the shares that are available. One way to find float is to take the total number of shares and subtract the number shares that are already owned by insiders. Many tools will provide the float data for you.
Low float stocks typically have around 10-20 million available shares or less. Low float stocks often are companies that are primarily held by investors like directors of company employees. This only gives room for a small percentage of shares left for retail investors/traders.
Knowing whether or not a stock has low float is important because they typically have higher spreads and higher volatility. This is because there is less supply and bigger demand so the price goes up.
Stocks with a low amount of float have a constant fluctuation in price making them favorable with day traders because of the increased level of volatility. Traders who tend to purchase large quantities of stock could have leverage when trading stocks with low float because of how the price fluctuation. Knowing when to get out is very important, however.
Low float stocks are great for day traders, but not usually recommended for long-term investors. At the same time, investors may want to look into other types of float stocks, which could be a penny stock, held mostly by a hedge fund, never made it to your watchlist, part of a stock buyback, an initial public offering, etc. With this level of variety
What’s the Difference Between Float and Shares Outstanding?
Float and shares outstanding are two ways to measure shares of a stock.
Floating stock is measured by taking the total shares outstanding and subtracting closely-held shares. Closely-held shares are held by insiders and investors like officers, directors, employees or a company insider. It shows how many shares are available on the market by the general population.
Shares outstanding is the total number of shares issued, including shares that are held by shareholders. Remember, the stock price is impacted by closely-held shares, and that is why you want to know how many there are, irrespective of current trading volume.
How to Find Low Float Stocks
Benzinga Pro offers a Screener tool to find float. You can set different parameters and filters to find things such as:
- Specific dollar amount
- Float
- Float percentage
- Volume
- Shares outstanding
- And much much more
There is an option to save the parameters you’ve chosen so it’s easily accessible for the next time.
Go Deeper With Each Float Share:
Click on the webinar below to watch a previous webinar on low float stocks and how they can improve the standing of your brokerage account.
What to Look For In Low Float Stocks
News catalysts and volume are important when looking at low float stocks. They are both good indicators of stock health.
News catalysts are extremely important when it comes to low float stocks, so keeping track of what’s happening is necessary. It could be possible to profit from both the rise and fall of a stock, but understanding what the news is telling you is vital.
You also want to look at volume. Volume means movement. Movement means transactions. Volume can help a trader understand the health of a stock as well as how the performance of the movement is.
Key Takeaways
Low float stocks are stocks with a low amount of shares lingering on Wall Street. The demand is typically higher than the supply so the price is increased, but there is a way to improve your stock portfolio with these assets.
Given the right tools, these stocks are great for day traders because of their increased volatility because of the high demand. With that being said, what goes up must come down. As fast as low float stocks can go up, they can go down just as fast.
News and Volume are good indicators of stock health and are important to monitor when looking to trade low float stock. Tracking movements and headlines could allow traders to maximize their strategies.
Benzinga Pro provides traders with news as soon as they hit the headlines as well as filters to find the information needed to stay up to date and take advantage of unique trading opportunities.
Disclaimer: Benzinga is a news organization and does not provide financial advice and does not issue stock recommendations or offers to buy stock or sell any security. Benzinga Pro is for informational purposes and should not be viewed as recommendations. Benzinga Pro will never tell you whether to buy or sell a stock. It will only inform your trading decisions. You can find our full disclaimer located here.