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Why Stock Float Matters for Day Traders - YouTube
Channel: Timothy Sykes
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- Today I'm gonna teach you all
about what is a stocks float
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and why it's so damn important.
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(bright music)
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What's up, Tim Sykes, millionaire
mentor and trader here
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answering your questions.
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A lot of people ask me
what is a stocks float?
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Why does it matter?
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Why is it important?
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Well, it is important.
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You have two things to
consider when valuing a company
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and when valuing the stock to trade.
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Valuing a company, you multiply
the shares outstanding,
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by the stock price.
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So, let's say a company
has six million shares
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outstanding total, six million shares,
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and the stock is trading at $3 a share.
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six million times $3 a share, multiply em,
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18 million dollar company, right?
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Pretty simple.
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Now it gets a little more complicated,
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what is the float
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So there are restricted shares
and unrestricted shares.
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Shares outstanding is
total number of shares,
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so that includes restricted
and unrestricted.
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Restricted cannot be sold
for certain amounts of time.
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Sometimes there's 12, 18,
24 months holding periods
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when a new employee joins a company
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they get restricted
shares, they can't just
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sell the shares right away
they earn the shares over time.
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So let's say I'm a programmer
and I join a company,
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I get 10 000 shares that
I can sell in 24 months,
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those shares are restricted.
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Restricted shares are not
part of the public float.
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So, let's say again you
have, what was my example,
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six million shares outstanding, right?
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And let's say there's four
million restricted shares
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so that leaves two million
unrestricted shares.
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The unrestricted shares are the float.
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So there's two million
shares that can trade freely,
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that's the supply.
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If you know economics, the
stock market, a lot of it
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is supply and demand.
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So let's say there's two
million shares that can trade,
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but obviously some people
are gonna hold onto them,
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some people are long-term holders,
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but out of the two million, let's say,
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there's one and a half million
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that are just freely floating shares.
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Like 500 000 shares are owned by people
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they could sell them
but they don't want to
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they're long term investors.
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That leaves 1.5 million,
and again, you don't know
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how many people are
actual long term investors
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all you know is what is restricted
and what is unrestricted.
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But we know that companies have holders,
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people who invest in the company,
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people who believe in the company.
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So the public float is
actually less that what the
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publicly available numbers say,
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you have to try to guestimate.
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If you just wanna go with what
the actual public float is,
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hey, okay, two million
shares, unrestricted shares.
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Let's say a company,
with these two million
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unrestricted shares that
can trade at any time
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has good news, they announce
a big contract with Apple
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and they're a small little
crappy software company.
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This is big news and maybe
this stock is gonna trade
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four million shares,
maybe six million shares,
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maybe even 10 or 20
million shares in one day
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when the news is announced.
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Remember there's only two
million shares that could trade.
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If it trades 20 million shares on the day,
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it's traded ten times the float,
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the float has rotated 10 times.
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Sometimes the float is two
million and the stock will trade
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50 million shares in a day.
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That means that it's traded
25 times the public float.
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What does this mean?
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This means that there's a lot
of demand for these shares
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and if any of these people
who are selling the shares
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don't actually sell,
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let's say they just
believe in the company,
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this company just got a big Apple deal,
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they take their shares out of the float,
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they're gonna hold onto them.
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So there's even less supply
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and if more and more people wanna buy,
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if there's demand and less supply
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the stock price has to go up.
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The stock price goes up because
too many people want to buy
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the stock and there's not enough sellers.
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When the stock price
rises it attracts sellers
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because then theoretically
somebody might sell a stock
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at $7 a share because
they have a big profit.
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If the stock was only at $3
a share they might not sell
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because they don't have a big profit.
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So the stock price has to
rise to induce people to sell
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to accommodate all the buyers.
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So it's very important to
look at the supply and demand
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it's not an exact science,
but it's good to know
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what is a low float stock.
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Two million, three million shares total,
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that's a very small float
and if it trades millions
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of shares in a day, that
means there's a lot of demand,
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the stock could keep going
because theoretically
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there's good news.
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And if there's a big float,
let's say a billion shares,
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some of these penny stocks
have like a billion shares
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outstanding and the stock
is trading at like a penny,
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it's because the company
has diluted the shares
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and that's why each
share is worth so little.
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They've raised a lot of
money over and over again
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selling 50 million shares,
selling 70 million shares
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for pennies on the dollar
just 'cause they need cash.
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I prefer trading low float stocks but,
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you have to understand low float stocks
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can move very quickly.
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So for me as somebody
who alerts my trades,
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I usually stay away from
low float stocks even though
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they are the most volatile.
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Partially because I do alert
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and it's not good when I do
alert a stock and I'm like
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oh, I bought this stock at two,
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my goal was to sell it at three,
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and within seconds before I
can even type out the alert,
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with low float stocks sometimes
they spike from two to three
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so on my alerts I typically
avoid low float stocks.
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Because I don't want the
stock moving too quickly,
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I want you to learn in real time.
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And a lot of people get pissed, frankly,
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when the stock moves too quickly
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before I can even type out my alert.
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But I don't want anybody
following my alerts,
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I want you to learn from my mindset,
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why am I entering a stock?
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Why am I exiting a stock?
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That's why I stay away low floats.
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If you're a beginner,
I'd be very, very careful
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with low float stocks.
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The stock can move much quicker
than you're prepared for.
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I typically prefer stocks with like
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five, maybe 10 or 20 million share floats,
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that's my personal
preference for safe trading.
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Leave a comment underneath,
let's hear what you think.
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Hey, Tim Sykes millionaire
mentor and trader,
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thank you for watching my videos,
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I hope that they help you,
I wanna share everything
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that I've learned over the years.
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You can check out more
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