What Is a Stock Split? What Happens to Your Shares

You open your brokerage app one morning and your favorite stock has gone from $600 to $60. Your share count just jumped tenfold. Did you get ripped off? No. The company did a stock split, and you are exactly as wealthy as you were the night before.

What a stock split actually does

A split cuts each share into several smaller ones. In a 2-for-1 split, one share becomes two, and the price per share drops by half. In a 10-for-1 split, one share becomes ten at a tenth of the price. The company itself is worth the same. It is like swapping a $100 bill for ten $10 bills.

Say you own 5 shares at $400, so $2,000 total. After a 4-for-1 split you own 20 shares at $100. Still $2,000.

Why companies do it

• Lower price per share. A $1,000 share feels out of reach for a lot of people, even though most brokers sell fractional shares now.
• More trading. Cheaper shares tend to attract more everyday buyers.
• Employee stock plans. Smaller share prices make it easier to hand out stock to staff in neat amounts.

Does a split make the stock go up?

Not by itself. Nothing about the business changes. Stocks do sometimes rise around a split announcement, but that is usually because people get excited and buy, not because the split created value. Companies that split are often ones that already ran up a lot, which is why the pattern looks so good in hindsight.

The reverse split

A reverse split goes the other way. A 1-for-10 reverse split turns ten shares into one, with the price multiplied by ten. Struggling companies use it to avoid being kicked off an exchange for a price that is too low. It is often a warning sign, so look closely at why a company is doing one.

What to do if a stock you own splits

Usually nothing. Your broker adjusts your share count and cost basis automatically. Your chart history gets adjusted too, which is why old prices look different than you remember. If you have limit orders open, check them, since some brokers cancel them around the split date.

Related reading

• What Is a P/E Ratio? How to Use It Without Getting Fooled
• What Is a Bond? How Bonds Work and Why Prices Move With Rates

This is general education, not financial advice. Talk to a licensed advisor before making decisions with your money.