Definition
Free float refers to the shares of a public company that are freely available for trading on the secondary market - that is, excluding shares held by strategic investors, government, founders, employees under lock-up, and other restricted parties.
On the Pakistan Stock Exchange, free float is the basis for the KSE-100 index weighting. A company's index weight is derived from its free-float market capitalisation, not its total market cap.
Formula
Free float = Total shares outstanding - Strategic / locked / restricted shares
Worked example
A company has 1,000,000,000 shares outstanding. Founders hold 60%, government holds 12%, and there is a 3% ESOP lock-up. Free float = 1bn x (1 - 0.60 - 0.12 - 0.03) = 250,000,000 shares.
Why it matters
For retail investors, free float matters in three places:
- Index inclusion. Lower free float means lower weight in KSE-100.
- Liquidity. A stock with thin free float can be volatile on modest volumes.
- Block trades. If a major shareholder reduces, the float expands and can pressure price.