Home Q-Tips Share structures and how it can affect a stocks volatility.

Share structures and how it can affect a stocks volatility.

Step #1 for all traders should be checking shares structures

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How Share Structure Impacts Trading

Share structures, and especially float, plays a key role in trading because it controls the liquidity of a stock.

Stocks with higher float tend to have more liquidity, see higher daily trading volumes, and are generally simpler to buy and sell because more shares are available on the public marketplace.

Stocks with low float have low liquidity, which can restrict trading volumes and make it difficult to buy or sell the stock.

The liquidity partially controls the supply and demand balance of a stock. If a particular stock is in high demand but also in high supply, then the price will not skyrocket.

However, if the same stock is in high demand but low supply then the price can move abruptly. While low supply with a low float is not necessarily a good thing for the price of a stock since low liquidity can also cause the price of a stock to be extremely volatile.

 

Micro Floats

Any floats that are under 1 million are considered a micro float. Here are two things you should know about micro floats: They have really high volatility. It is hard to get an exact entry point because the spread is typically large, and the price range can be extremely high.

 

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