Floating on the Stock Exchange

Floating Shares

Floating on the market is a market term for selling shares of a company into the stock exchange for the purpose of raising capital. A company that needs money for growth or expansion has several ways to raise money. The funds can be borrowed through bank loans, by selling bonds or floating on the market. The term floating on the market is commonly used in many stock markets, but is not in general use in the U.S.

In the U.S. the sale of shares into the market is referred to as a public offering of shares. If the company is currently in private ownership and is offering shares to investors for the first time, floating on the market is called an initial public offering, or IPO for short. An IPO usually sells just a portion of the total shares of a company. The company may make subsequent public offerings to raise additional capital.

The term market float is commonly used in the U.S. as well as other stock markets. The market float of a company is the number of shares in the hands of investors that are available for market trading compared to the total number of shares in the company. The float is defined as the total number of shares outstanding minus the shares classified as restricted. An example would be Global Ship Lease, which trades on the New York Stock Exchange. This company has over 48 million outstanding shares but a float of only 8.2 million shares.

U.S. investors who see that a company is going to float shares on the market understand that the term means that additional shares will be sold to raise money. The current market float of a company can affect the volatility of shares. A stock with a low float will tend to have a more volatile share price. A fewer number of shares available for trading can lead to large price swings if the company makes market news for a positive or negative reason.