Understanding free float vs shares outstanding is essential for institutional investors, index providers, and analysts alike. Shares Outstanding refers to the total number of a company’s issued shares, including those held by insiders, institutions, and the public. Free float (or public float), on the other hand, represents only the shares readily available for public trading on the stock market.
The difference between these two figures helps clarify how much of a company’s equity is actively circulating in the market. With the increasing complexity of financial markets, there is a growing demand for accurate data on share ownership and availability in these markets. Clearly distinguishing between free float and shares outstanding enables better-informed decisions across the financial sector.
What Are Shares Outstanding?
Shares outstanding refer to the total number of a company’s shares that are currently held by all shareholders, including public investors, insiders like executives, and institutional holders. These shares represent ownership in the company and play a crucial role in key calculations and determining market capitalization.
Outstanding shares are calculated as:
Issued Shares – Treasury Shares = Outstanding Shares.
To understand shares outstanding, it helps to break down its key components:
- Issued Shares
Also known as issued stock. These are the number of shares a company sells to shareholders, including those held by the public, institutions, and insiders. - Treasury Shares
Also known as treasury stock or reacquired stock. These are shares that the company has repurchased from its shareholders. The company keeps these shares in reserve, and they are not available to the public. - Restricted Shares
Shares given to company insiders (like executives or board members) cannot be sold or transferred until certain conditions are met. - Closely held shares:
Shares in a company owned by a small number of individuals or entities, often members of the same family or long-term investors. - Strategic Holders
Individuals or organizations that invest in companies for strategic reasons, rather than just financial gain. They aim to gain advantages that help their own company grow and innovate.
Example
Company A has issued 10 million shares.
It has repurchased 1 million of those as treasury shares.
Therefore, 9 million shares are currently outstanding.
These outstanding shares determine the voting power and ownership distribution within the company, playing a key role in assessing its valuation.
What Is Free Float?
A free float, also known as a public float, refers to the shares of a company that are available for public trading on the open market. These are the shares that everyday investors can buy and sell freely, without restrictions.
Free float excludes shares held by strategic shareholders (Individuals or organizations that invest in companies for strategic reasons, rather than just financial gain.) such as company insiders (executives, directors, and employees), founding family members, and long-term institutional investors, who typically hold onto their shares for strategic purposes rather than trading them in the market. These excluded holdings are considered less likely to be sold in the short term.
Example:
- 9 million shares outstanding
- 2 million held by insiders and strategic holders
- 7 million free float shares
Free Float vs Shares Outstanding: Key Differences
To clearly distinguish between free float and shares outstanding, the table below highlights the key differences:
| Factor | Shares Outstanding | Free Float |
| Definition | Total shares issued minus treasury | Shares available for public trading |
| Includes | Insiders, institutions, and public | Only public-accessible shares |
| Used for | Market cap, ownership calculation | Liquidity, index inclusion, and volatility |
| Affects | Total company value and shareholder structure | Trading activity, stock movement, and investor sentiment |
The differences also affect how stocks behave in the market:
- Liquidity:The free float provides a more accurate representation of how easily a stock can be bought or sold. A lower float often means reduced liquidity.
- Index Weighting: Major indices use free float-adjusted market capitalization to weight companies, rather than the total shares outstanding.
- Volatility: Stocks with smaller free floats tend to exhibit greater price fluctuations due to limited market liquidity.
Why Free Float Matters for Investors
Free float is critical in helping investors assess how a stock behaves in the market. Two companies with similar market capitalizations can have very different trading dynamics and investor appeal, depending on their free float. Here’s how a higher free float can influence key investment factors:
- Liquidity: A higher free float means more shares are available for public trading, making it easier to buy or sell without significantly affecting the stock price. This leads to smoother trading.
- Volatility: Stocks with a higher free float tend to be less volatile, as the increased supply of tradable shares helps absorb shifts in demand. In contrast, stocks with low float are more sensitive to trading activity and can experience larger price swings.
- Index Inclusion: Many stock indices use Free Float-adjusted market capitalization to weight companies. A higher free float often indicates greater liquidity and a more accurate reflection of market value.
- Investor Perception: A higher free float may indicate lower insider control and greater transparency, making a stock more attractive to institutional and long-term investors.
How to Calculate Free Float
Free float is calculated by identifying how many of a company’s shares are available for public trading. This involves a two-step process:
- Calculate Outstanding Shares:
- Calculate Free Float:
Outstanding Shares = Issued Shares – Treasury Shares
Issued shares include all shares distributed to investors, including insiders and restricted shares.
Treasury shares are shares the company has repurchased but not retired; they are no longer in circulation.
Free float = Outstanding Shares – Restricted/Strategic Shares
Restricted or strategic holdings refer to shares held by insiders, founding members, employees, or long-term institutional holders who are unlikely to trade them on the open market.
How EDI Collects and Maintains Free Float Data
Exchange Data International (EDI) sources and maintains free float data through a combination of vendor feeds and an annual reports approach designed to balance accuracy with frequency of updates:
- Vendors
- Annual Reports
EDI collects data from stock exchanges, trusted third-party data providers, and financial websites. These sources are monitored and processed on a daily, weekly, monthly, or quarterly basis, depending on market availability.
When vendor coverage is limited or unavailable, EDI relies on annual reports. The process involves extracting the shareholding structure from each company’s latest report, classifying each holding based on EDI’s internal methodology, and calculating the free float accordingly. In cases where a stock exchange does not publish a float methodology, EDI applies its own by excluding shares held by significant or controlling shareholders.
To further improve accuracy, EDI plans to track ownership changes between annual reports to ensure more frequent updates in the future.
EDI’s Free Float Data service covers over 170 exchanges globally, with clearly defined float methodologies per market. All datasets include detailed identifiers such as ISIN and issuer name for transparency and traceability.
Conclusion: Why Understanding Free Float vs Shares Outstanding Matters for Market Strategy
Shares outstanding include all issued shares, public, insider, and strategic holdings, while free float focuses only on shares available for public trading. Understanding free float vs shares outstanding is vital for professionals involved in index construction, portfolio management, risk analysis, and compliance.
Free float data offers a clearer view of how actively a stock can trade and how much is truly accessible to investors.
For institutional decision-making, relying on accurate and regularly updated free float data is crucial.
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FAQs on Free Float vs Shares Outstanding
Q: What is considered a strategic holding?
A: Strategic holdings are shares owned by individuals or entities with long-term control or influence over a company, such as founders, executives, board members, or institutional investors with a controlling interest. These shares are typically excluded from the free float.
Q: How often does free float change?
A: Free float can change whenever there are significant shifts in ownership, such as insider selling, share buybacks, new share issues, or lock-up expirations
Q: Do all indices use free float adjustments?
A: No, but most major global indices, such as those from FTSE Russell, MSCI, and S&P Dow Jones, use free float-adjusted market capitalization to ensure index weightings reflect shares available to public investors.
Ana Sanchez is a Business Analyst at Exchange Data International (EDI). She leads the development and delivery of EDI’s free float and ownership datasets, helping clients gain accurate insights into shareholder structures and market transparency. Her expertise ensures that EDI remains a trusted partner in delivering high-quality, actionable data across markets.