Stock splits and reverse stock splits are corporate actions by which a company aims to respectively decrease or increase its share price without changing its market capitalisation and underlying value.
Stock Split
A stock split is when a company increases the number of shares in circulation without affecting the underlying market value of the business. 📈
Companies often perform a stock split to make their shares more affordable to investors. However, unlike issuing new shares, a stock split does not dilute the ownership of the existing shareholders.
How stock splits affect position(s):
If you own 100 shares of company A that trade at $100 & the company declares a 2-for-1 stock split, you will now own 200 shares at $50. The value of your shares with the company is 100 shares x $100= $10 000 before the event. After the split, their value will be exactly the same: 200 shares x $50 = $10 000.
Nothing changes value-wise - the concept is similar to slicing a pizza 🍕 in either 5 or 10 slices. There's still only one whole pizza, it's just sliced differently.
Reverse Stock Split (also known as Share consolidation)
Opposite to the stock split, a reverse stock split reduces the number and increases the value of the shares. It does not impact the value of the company in any way.
How reverse stock splits affect position(s):
If you have 200 shares at $50 and a company performs a 1-for-2 reverse stock split, you will now own 100 shares at $100. Using the pizza example again, a reverse stock split would be slicing a pizza in 5 slices instead of 10.
What happens if I own fractional shares? 🧐
Fractional shares get split just like any other quantity of shares.
In the example of a stock split, if you own 0.25 shares of company A at $100 & it performs a 2-for-1 stock split, you will now own 0.5 shares of the same company at $50.
As for a reverse stock split, if you own 0.25 shares of company B at $50 & it performs a 1-for-2 reverse stock split, you will now own 0.125 shares of the same company valued at $100.
*All pending orders will be cancelled automatically in case of a Stock split or a Reverse Stock split. 🚨