Understanding the Free Float Factor

The stock market can be tricky, but understanding key concepts like the "free float factor" can improve your investment strategy. Free float refers to the portion of a company's shares available for public trading, excluding shares held by long-term investors, such as company founders, governments, or strategic partners.

The free float factor is crucial for calculating a company’s "free-float market capitalization," which offers a more accurate view of the company’s trading value than total market capitalization. Stock exchanges and indices, like the BSE Sensex, use this to track the market's performance.

To calculate the free float factor, identify and exclude shares that are not available for trading, such as those held by promoters, locked-in shares, and government holdings. The formula is: (Total Shares - Non-Free Float Shares) / Total Shares. A higher free float indicates more liquidity, helping investors make better decisions and understand market movements.