Low Float Stocks

Low Float Stocks refer to publicly traded companies with a smaller number of shares available for trading in the open market. The “float” in a stock represents the portion of shares available for public trading, excluding shares held by insiders, major shareholders, and those under restrictions. When the float is particularly low, the stock is termed as a “low float” stock.

What Does Low Float Mean in Stocks?

The term “low float” refers to a situation in which the quantity of shares available for trading in the open market is restricted or limited. As a result of the restricted availability of shares, low float equities exhibit greater volatility in comparison to companies with higher float. The reason behind this volatility is that even relatively modest trade volumes have the potential to result in substantial fluctuations in prices.

Significance in Trading

• Volatility: Low float stocks can experience more significant price fluctuations. Even a modest buy or sell order can move the stock’s price considerably.
• Price Manipulation: Due to their susceptibility to large price swings from smaller trades, low float stocks are more vulnerable to price manipulation tactics.
• Short Squeezes: With fewer shares available for trading, low float stocks are often targeted for short squeezes. If a large proportion of the float is shorted, and the stock starts rising, short sellers might rush to cover their positions, driving the price up even further.
• Liquidity Concerns: Trading low float stocks can pose liquidity challenges, especially for larger orders. It might be harder to enter or exit positions without impacting the stock price.

How to Find Low Float Stocks?

1. Stock Screeners: Many online stock screeners allow users to filter stocks based on the float. Setting the screener to show stocks with a float below a specific threshold (e.g., 10 million shares) can yield a list of low float stocks.
2. Financial Websites and Platforms: Websites like Yahoo Finance, Finviz, or MarketWatch often provide stock float data in their stock statistics or profile sections.
3. Brokerage Platforms: Many brokerage platforms provide detailed stock metrics, including float. Some might even offer pre-defined screeners or lists highlighting low float stocks.
4. Financial News and Forums: Low float stocks that are moving significantly often make headlines or are topics of discussion in financial forums.

Summary

Low float stocks are a special category of stocks in the stock market because they trade in a very volatile way. Due to their price swings, they offer chances for big profits, but they also come with higher risks. Traders who want to buy these stocks should know a lot about them and have plans for how to handle the risks that come with them.