The term “float” can be applied in a number of ways. For example, in the context of investments, free float or floating shares are those which may be traded. Floating shares must be differentiated from outstanding shares, because not all shares which are outstanding may be available for trading. This usually happens when entities who have control over the distribution of shares, such as the founders of the company, are not willing to sell certain shares. These are referred to as restricted shares, and they must be subtracted from outstanding shares in order to find out how many may be considered floating shares.
It is important to determine which shares are part of the float because this figure is used by many financial institutions and index providers to determine the market value of companies. Floating shares are often considered a more reliable tool to gauge this, in comparison with outstanding shares.
On the other hand, in the context of banking, float may refer to the amount of money that may be reflected in two accounts at the same time.. This comes about as a result of a lag that takes place between the issuance of a check and the point at which the amount is actually deducted from the funds of the account holder. This discrepancy in records is of course temporary, and the period during which this exists is known as float time. Some people have taken advantage of this period, engaging in a practice known as check kiting. This consists of writing a check for an amount higher than that available in the account, and then using the lag time for making a deposit or for depositing another check into the first account. This is, however, illegal and is now prevented by faster check processing and the existence of electronic means of banking.
