A stock split is a type of corporate action that occurs
when a company's board of directors decides to divide
the company's outstanding shares into a larger or
smaller number of shares. Splits are a change in the
number of outstanding shares of a company’s stock
without a change in shareholders' ownership percentage
in the company. For example, with a 2:1 split, a client
will receive 2 shares for each share owned prior to and
through the open on the security's split
ex-dividend (or “effective”)
date.
There are two types of stock splits:
Forward splits are the division of the outstanding shares of a corporation into a larger number of shares. For example, in a three-for-one stock split (3:1), each old share is now equal to three shares. The price per share would also go down. In this example, if the pre-split share was worth $9, the post-split share would be worth $3. Usually, splits must be voted by directors and approved by shareholders.
Reverse splits are a
reduction in the number of outstanding shares. For
example, if you had 300 shares of XYZ and there was a
one-to-three reverse split (1:3), your old 300 shares
would now be equal to 100 shares. The price of each new
share would also be worth more. If the pre-split share
was worth $2, the post-split share would be worth
$6.
When you hold a short position on a stock that has a forward split, the shares will be debited from (NOT credited to) your account. Essentially, your short position is increased due to the split.
U.S. exchange-listed stocks, ETFs, and options. $0.65 per option contract
Learn more