Free Float

Free float is the portion of shares that is freely tradable on the stock exchange. It does not include tightly held blocks owned by major shareholders. A high free float ensures liquid trading, where shares can be bought and sold easily.

Holdings excluded from the calculation typically include stakes held by founding families, strategic anchor shareholders, the state and management, treasury shares, and blocks subject to lock-ups. Index providers define the relevant thresholds in their rulebooks. Its practical significance rests on three points. First, free float determines liquidity and therefore the bid-ask spread, which feeds directly into the price achievable, since illiquid stocks trade at a discount. Second, it is a condition for index inclusion, which itself generates demand from passive funds and is therefore price-relevant. Third, exchanges require a minimum distribution for admission to the regulated market so that functioning trading can exist at all.

In takeover situations the figure matters twice over: a low free float makes it easier for an anchor shareholder to retain control, while a bidder depends on free float shareholders tendering in order to reach the thresholds for a squeeze-out or a domination agreement. After a successful takeover offer the free float regularly falls so far that liquidity suffers and a delisting follows. For companies the size of the placement is a trade-off: a larger free float improves tradability and index eligibility but reduces existing shareholders' influence and increases the number of parties to be served on an ongoing basis. Its composition also deserves thought, since a free float consisting mainly of passive index funds behaves differently in takeover situations from one with active investors. For bidders the distribution is therefore an analysis point of its own in preparing an offer.