Float refers to the number of outstanding shares of a company that can actually be traded, while the volume represents the number of shares traded on a given day. Although both concepts are related they have very distinct meanings and should be used in different ways.
What is float?
The float represents the number of outstanding shares of a company that can actually be traded. It is calculated by subtracting restricted stock by the number of outstanding shares of a company. Restricted stock, is shares of the company that are issued to executives and are not allowed to be traded.
Float=Outstanding shares - Restricted Stock
While outstanding shares allow investors to know exactly how many shares of the company exist, some of these outstanding shares include restricted stock. Since restricted stock cannot be traded, the float gives a much better impression of how many shares are available to trade.
Therefore in order to understand the magnitude of the volume traded on a daily or weekly basis, it is always better to use float instead of outstanding shares.
What is volume?
Volume represents the number of shares traded during a certain period of time. It is a very useful indicator for traders, to analyze the liquidity of a certain stock, or try to anticipate large movements, based on how the volume changes daily.
What is the difference between volume vs float in stock?
While volume represents the number of shares that are traded in a specific period of time, the float represents the total number of shares that can actually be traded.
It is particularly important to understand both concepts, as they are related to some extent. You should also understand the difference between float vs volume. A ratio that is quite commonly used is the volume to float ratio. It compares the daily volume traded of a certain stock with its float.
Volume to float ratio formula
Volume to float ratio = Daily Volume/ Float
Is low float good or bad?
A low float typically means that the stock will likely be more volatile. Any positive news or developments for the company could push the stock very high in a short period of time since the number of available shares to trade is low. On the other hand, negative news might also be more impactful since the number of shares is lower.
Some trading strategies focused on the short-term are based on finding low float stocks that can have rapid movements.
Can the float be higher than volume?
Yes, usually the float is always higher than the volume. However, during very volatile periods it is possible for the volume to be higher than the float.
Can the volume be higher than float?
Yes in days when a stock is highly traded it is possible that the volume is higher than the float, although this type of situation is rare.
What does it mean when the volume is higher than float?
When the volume is higher than the float it means the stock is being highly traded. This also indicates that there is a very high turnover. This is a rare event for most stocks. It tends to be associated with periods of high volatility, where a lot of investors are selling and buying the same stock.
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