What is a stock split?
A stock split occurs when a company increases the number of shares in circulation while maintaining the same underlying market value of the business. 📈 Companies often perform stock splits to make their shares more affordable to investors.
Note: A stock split does not dilute the ownership of existing shareholders, unlike issuing new shares.
💡Example:
You own 100 shares of company A, trading at $100 per share, making the value of your position $10,000 (100 x $100). The company declares a 2-for-1 stock split.
As a result, you will now own 200 shares at a price of $50 per share. The value of your position remains the same after the split - 200 shares x $50 = $10,000.
Think of it like slicing a pizza into either 5 or 10 slices.🍕 The pizza as a whole remains the same, it's just divided differently.
What is a reverse stock split (share consolidation)?
A reverse stock split reduces the number of shares and increases their individual value. Similar to a stock split, it does not affect the value of the company.
💡Example:
You own 200 shares of a company valued at $50 per share, making the total of your position $10,000. If the company performs a 1-for-2 reverse stock split, your position will be adjusted to 100 shares at a price of $100 per share. The value remains $10,000.
The pizza example remains valid here as well.
How are fractional shares affected?
It's exactly the same.
- For a stock split, 0.25 shares at $100 would become 0.5 shares at $50.
- For a reverse stock split, 0.5 shares at $50 would become 0.25 at $100.
Note: All pending orders will be cancelled automatically in the event of a stock split or a reverse stock split.