Restricted Stock
Restricted stock is stock that was issued to someone — usually a company founder, executive, or employee — that cannot be freely sold on the open market right away. It is real stock and the holder owns it, but there are strings attached to when and how it can be resold, because it was typically granted outside of a normal public stock sale.
Companies use restricted stock as a form of compensation. Instead of paying someone entirely in cash, a company gives them shares as part of a pay package or an acquisition deal. Because the shares didn't go through the standard public offering process, regulators require a holding period and certain sale conditions before those shares can be sold to the public, so the market isn't flooded with insider shares the day they're granted.
The nuance that trips people up is the difference between restricted stock and "insider" shares generally. Not everything an insider holds is restricted, and not all restricted stock is held by insiders — restricted status is about how the shares were issued and their resale conditions, not simply who holds them. Once the holding period ends and any other conditions are met, the shares can be sold and effectively join the float, the pool of shares available for public trading. Restricted shares, once freed up, add to supply that day traders watching float and volume should be aware of.
People also confuse restricted stock with restricted stock units, or RSUs, which are a promise to deliver shares in the future rather than shares held now with a resale limitation. Restricted stock already exists and is owned; an RSU hasn't been issued as actual stock yet.
This term depends on a rule or threshold that changes over time, so no specific figure is quoted here. The definition references 'SEC regulations' governing resale of restricted stock (commonly associated with holding periods and volume/manner-of-sale conditions under rules like Rule 144) without stating a specific holding period or numeric threshold, since these can be amended. A human editor should confirm the current holding period length and any current volume limitations directly against the SEC's current rule text before publishing any specific figure.
Day traders care because large blocks of restricted stock becoming freely tradable can add sudden supply to a stock, sometimes pressuring the price or spiking volume around known unlock dates.
An executive is granted 50,000 restricted shares when she joins a company. She cannot sell them immediately; once the required holding period and any other resale conditions are satisfied, she can sell those shares, and from that point they trade like any other shares in the float.
Learn it by trading it.
Every term in this glossary shows up daily on our live desk.
Watch a morning, free