Free float: meaning and how it is counted

What is free float

Free float is the part of a company's issued shares that ordinary investors can actually buy and sell on the market. Shares held by owners who are not expected to trade them do not count.

The formal version: free float equals shares outstanding minus shares held by strategic or restricted holders. The free float percentage is that free float divided by total shares outstanding. Free float market capitalisation is the free float multiplied by the current share price.

Shares usually excluded from free float:

• Holdings of sponsors, promoters and founding families
• Shares held by directors and senior management
• Stakes held by the government or state bodies
• Cross-holdings by associated or group companies
• Strategic investors with a long-term controlling or blocking stake
• Treasury shares, meaning shares the company has bought back
• Shares under a lock-in, for example after an IPO

Shares held by mutual funds, pension funds and retail investors are normally counted in the free float.

A worked example (hypothetical)

Take an imaginary listed company. The founding family holds most of the shares. A government body holds another block. A group company holds a smaller cross-holding. Everything else is held by funds and the public.

The free float is total shares minus the family block, the government block and the group company's stake. If those three blocks together make up most of the shares, the free float is small. A small free float means only a thin slice of the company changes hands each day, even if its total market capitalisation is large.

If the founding family later sells part of its stake to the public, the free float grows while the total number of shares stays the same.

Free float on the PSX and in the news

On the Pakistan Stock Exchange you meet free float in these places:

• Index weighting. PSX benchmark indices, like many global indices, weight companies by free float market capitalisation rather than full market capitalisation. A company with a small float carries less weight than its total size suggests.
• Company data pages. Exchange and data-vendor pages often list free float shares or a free float percentage next to market capitalisation.
• Listing rules. Exchanges commonly set a minimum free float for listed companies. Check the current PSX rulebook for the exact requirement.
• News. Headlines about offers for sale, secondary offerings or sponsor stake sales often mention a change in free float.

Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers.

Why it matters and the edge cases

A low free float usually means lower liquidity, wider bid-ask spreads and sharper price moves on modest volume. Experienced readers should watch these edge cases:

• Definitions differ. The PSX, global index providers and data vendors do not all exclude the same holders, so their free float figures can disagree.
• Rounding into bands. Some index methods round the free float factor into bands instead of using the exact figure.
• Lock-in expiry. When an IPO lock-in ends, free float can rise suddenly.
• Depositary receipts. Shares backing ADRs and GDRs may sit in a custodian's name. How they are counted depends on the method.
• Float vs outstanding. Shares outstanding include every issued share in investors' hands. Free float is a subset of that.

Stock index and share CFDs reflect the underlying market's liquidity. Leveraged CFD trading can lose money fast. See risk management and regulation and safety.

Related terms

• Book value
• Blue chip stocks
• Delisting
• Circuit breaker
• Stock indices
• Fundamental analysis
• Trading glossary

Frequent questions

What does free float mean in simple words?

It is the shares of a company that the public can freely buy and sell, excluding stakes held by owners, insiders, the government and other strategic holders.

Are free float shares the same as shares outstanding?

No. Shares outstanding include all issued shares held by investors. Free float removes the locked-in and strategic blocks.

Why do indices use free float?

Weighting by free float market capitalisation reflects the part of a company investors can actually trade. Companies with large locked-in stakes do not get an outsized weight.

Where can I find free float for a PSX company?

Look on the PSX website company pages and in the company's annual report shareholding pattern. Figures from data vendors may use a different method.

Does a low free float mean a stock is risky?

It usually means lower liquidity and larger price swings on small volume. It says nothing on its own about the company's value.