Stock float6/15/2023 ![]() The catalyst will focus investor attention on the stock and, as investors try to buy or sell shares, the limited supply of them will apply great leverage to the stock price. For example, announcing that the Food and Drug Administration had approved or declined to a drug made by a small biotech company would be a powerful catalyst. A catalyst may be a press release announcing a material event, a news story providing compelling insight into the company’s prospects or a strongly positive or negative analyst report. When a sufficient number of shares are being traded daily, it increases the chances a trader can avoid getting stuck in a losing position due to lack of liquidity.Īnother important element for a successful low float investment is the presence of some sort of catalyst. Because there is a limited supply of these shares, a trader may have trouble buying shares when he or she wants to acquire them as well as finding a buyer when he or she needs to sell to lock in a profit. One way traders cope with the liquidity issue is to look for shares that, while having low float, also have high volume. Liquidity is one major factor to consider. These stocks are found mostly on NASDAQ and the over-the-counter market.įactors to Consider With Low Float StocksĪlthough appealing for its profit potential, low float trading is not without risk. The most popular stocks for low float investing are so-called penny stocks, which generally includes stocks trading for under $5 per share. Because of the great volatility of low float stocks, a trader can generate a return of a few percent for each trade like this. ![]() Some day traders may buy low float shares and hold them for only minutes before selling them again for a small profit. They can buy shares if they expect price appreciation, or short the stock by selling borrowed shares if they anticipate a price decline that will let them buy shares at a lower price before they have to be returned. High volatility like this is exactly what day traders seek, because it gives them the ability to make quick profits. ![]() Because there are so few shares available, if a material event or significant news about a low float stock breaks, the shares can rise or fall in price very rapidly. Trading in low float stocks aims to take advantage of the relationship between supply and demand. For the majority, only a few percentage points of those outstanding shares are considered restricted. Many public companies have hundreds of millions, billions or even tens of billions of shares outstanding. Relatively few companies fit this description of having low float. That’s because stock float excludes shares held by insiders and others that may be restricted from trading and, therefore, not available for public investors. The stock float figure is different and smaller than the number of shares outstanding. The most common definition of a low float stock is any company that has fewer than 20 million shares available for the public to trade.
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