Free float refers to the percentage of a company’s total voting shares that are freely traded and could therefore be held by anyone. Affiliated firms, directors, or even the government typically own the rest. So if a company has issued 100,000 voting shares, but 60,000 are held by the government and another 30,000 by its directors, the ‘free float’ is just 10%.
This can have odd consequences. For example, sudden demand for the few shares that “free float” can have a disproportionate effect on a firm’s estimated market value, which is usually based on its voting shares. If the share price jumps from £2 to £10, the firm’s value goes from £200,000 to £1,000,000, even though relatively few shares have been traded.
