Free-float methodology

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Free-float methodology is a method of calculating the market capitalization of an index's underlying companies. Instead of using all shares outstanding, as would be the case of a full-market capitalization method, the free-float method excludes shares that are closely held, and not traded, by businesses and governments. A free-float index captures the share of the market accessible by the trading public, and more accurately measures the investment set and investment performance of investors. [1]

The method is calculated according to the following formula:

FFM= Share price x (#of shares outstanding - locked-in shares)

Almost all indexes now tracked by index mutual funds and exchange traded funds (ETFs) are free-float weighted indexes.