What is free float in the context of UK equities?
Free float is the proportion of a company's shares available for public trading, excluding stakes held by founders, governments, and other strategic holders — used to determine LSE index weightings.
Free float refers to the portion of a company's total shares that are genuinely available for purchase and sale by public investors in the open market. Shares held by founders, major corporate shareholders, governments, or insiders who are unlikely to sell are excluded from the calculation.
On the London Stock Exchange, FTSE Russell requires that a company have a minimum free float of 25% to qualify for inclusion in the FTSE UK Index Series (Main Market). AIM companies have no mandated minimum, though very thin floats can deter institutional investment and reduce liquidity.
For index construction, FTSE Russell weights each constituent by its free-float adjusted market capitalisation rather than total market cap. This prevents large but illiquid stakes from distorting the index. A company with a £10 billion total market cap but only 30% free float contributes a free-float cap of £3 billion to index calculations, reflecting the realistic pool of shares available to investors.
Free float affects a stock's liquidity, bid-offer spreads, and volatility. A low free float means fewer shares change hands on a typical day, so even modest buying or selling can move the price sharply. This is why AIM stocks and newly-listed companies with large founder stakes can be more volatile than their market cap might suggest.
Investors tracking index changes should also understand how corporate events can alter free float. A rights issue, a major secondary sale by a founder, or a share buyback all shift the free-float percentage. When the free float of a FTSE 100 stock increases substantially, tracker funds must buy more shares to maintain correct index weighting, which can support the share price through the rebalancing period.