What is a stock split?
In one line: A stock split is when a company divides each share into several smaller ones. You get more shares at a lower price, but the total value stays the same.
A simple example with numbers
You own 100 shares at $1,000 each. Your position is worth $100,000.
The company does a 10-for-1 split. Now you own 1,000 shares at $100 each. That's still $100,000.
Nothing about the company changed. It's like trading a $20 bill for two $10s. The Market cap stays the same too.
A real case: Nvidia did a 10-for-1 split in June 2024. Shares that traded above $1,000 started trading around $120.
Why companies split
- Easier to buy. A $100 share feels easier to buy than a $1,000 one, though many brokers now sell fractional shares.
- More trading. Lower prices can bring in more buyers and more Volume.
- Index rules. The Dow Jones Industrial Average weighs stocks by price, so a very high share price can keep a company out.
Reverse splits
A reverse split goes the other way. In a 1-for-10 reverse split, 1,000 shares at $0.80 become 100 shares at $8.00. Same value.
Companies often do this to keep their share price above an exchange's minimum (Nasdaq and the NYSE generally require at least $1). It can be a sign the business has had a hard time, so read the news around it.
Why it matters for charts
Charting platforms adjust past prices for splits. After Nvidia's split, older candles were divided by 10, so the chart looks smooth instead of showing a 90% "drop." Turning points you marked by price before the split need the same adjustment.
A common mistake
Thinking a split makes the stock cheaper. The price per share falls, but the value of the company doesn't. A split is not a discount. Judge the stock on its chart and business, not its new lower number.
Questions
Is a stock split good for shareholders?
It doesn't change what you own in value. Some studies find stocks get more attention after a split, but a split by itself adds no value to the company.
Do I need to do anything when a stock splits?
No. Your broker updates your shares and price automatically. Your average cost per share is adjusted too.
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