Definition
Free float is the portion of a company's shares that is available for ordinary investors to trade, after excluding stakes held by controlling shareholders, governments, insiders and other strategic holders. It is usually expressed as a percentage of shares outstanding.
How it works
Index providers and many data vendors use free float to scale a company's weight so that an index reflects what investors can actually buy. A company with a large controlling stake can have a big headline market cap but a much smaller free-float market cap, and therefore a smaller weight.
Free float also hints at liquidity: a small float can make prices move more on modest orders and make large positions harder to enter or exit. Definitions differ between providers, including which holders count as strategic, and the figure changes after share sales, placements and lock-up expiries.
Formula / convention
Free-float market cap = Share price × Shares outstanding × Free-float factor, where Free-float factor = Free-float shares ÷ Shares outstanding
Illustrative example
Illustration with fictional figures: Company A has 1,000 million shares, of which 600 million are held by a founding family and a state fund, so its free float is 400 million shares and its free-float factor is 40%. At HK$10.00 per share the full market cap is HK$10.0 billion but the free-float market cap is HK$4.0 billion, the amount an index using free-float weighting would count.
What to watch for
Free-float figures are estimates that differ across index and data providers, and they are not the same as the public-float requirement in exchange listing rules. A low free float can magnify price swings.