A share or stock split is a type of “corporate action” a company can take and indicates that the company has, or is intending to, increase the total number of its shares. Companies usually do this to make their shares more accessible for investors, for example:
- a company's shares are trading at 100 USD each
- it undergoes a 10 for 1 split
- the new trading price of a single share is 10 USD
A single share for 10 USD may be a more accessible investment for persons who would not have considered, or had the capital to invest at the pre-split price.
Existing shareholders will have their positions proportionally adjusted. In the above example, an existing shareholder who had 1 share in a company that underwent a 10 for 1 split would then own 10 shares. It’s important to note that the value of that position is not directly affected by the split as the price of each share will split as well.
The split ratio can vary, some recent examples include:
On the other hand, a reverse stock split is a corporate action where the instrument’s shares in total are decreased. This increases the stock price proportionally but does not impact the company’s value.
Lightyear users who own applicable shares in a company undergoing a split will be notified about the corporate action with the details as every split is unique. Fear not though, we’ll process the split automatically for you.