If you're new to investing, you may have come across the terms "outstanding shares" and "float" and wondered what the difference is. Outstanding shares refer to the number of shares of a company's stock that are currently owned by all shareholders, including insiders such as the company's officers and directors. Float, on the other hand, is the number of shares that are available for trading by the public. In this article, we'll take a closer look at the difference between outstanding shares and float and why it's important to know the difference.

Outstanding Shares

As we mentioned, outstanding shares refer to the number of shares of a company's stock that are currently owned by all shareholders, including insiders. This number can fluctuate over time as new shares are issued and existing shares are bought or sold. The number of outstanding shares is important to know because it represents the maximum number of shares that could be traded in the market. If a company has one million outstanding shares and you own 100,000 of them, then you own 10% of the company. It's also worth noting that a company's share price is typically based on the number of outstanding shares.

Float

Float, on the other hand, is the number of shares that are available for trading by the public. This number is typically less than the number of outstanding shares because insiders, such as the company's officers and directors, often own a large portion of the company's stock. The float is important to know because it represents the number of shares that are actually available to be traded in the market. If a company has one million outstanding shares and a float of 500,000, then only half of the company's shares are actually available for trading. This can have a big impact on the price of the stock because it means that there is less supply and more demand for the shares that are available.

Why It's Important to Know the Difference

Now that you know the difference between outstanding shares and float, you may be wondering why it's important to know the difference. After all, if you're just looking to buy or sell shares of a company, does it really matter how many shares are outstanding or how many are available for trading?

The answer is that it depends. If you're just looking to buy or sell shares of a company, then you may not need to worry about the difference between outstanding shares and float. However, if you're trying to get an accurate picture of a company's stock price, then it's important to know the difference. For example, let's say that Company XYZ has one million outstanding shares and a float of 500,000. The current price of the stock is $10 per share. This means that the market value of the company is $10 million. However, if the float was only 200,000, then the market value of the company would be $2 million. This is because there would be less supply and more demand for the shares that are available, which would drive up the price.

The Bottom Line

Outstanding shares and float are two important concepts that every investor should understand. Outstanding shares refer to the number of shares of a company's stock that are currently owned by all shareholders, including insiders. Float, on the other hand, is the number of shares that are available for trading by the public. The float is important to know because it represents the number of shares that are actually available to be traded in the market. If you're just looking to buy or sell shares of a company, then you may not need to worry about the difference between outstanding shares and float. However, if you're trying to get an accurate picture of a company's stock price, then it's important to know the difference.