Stock Split

A stock split is a corporate action where a company changes the number of its shares outstanding by giving existing shareholders additional shares, without changing the value of what they own. It's essentially cutting the same pie into more slices, so each slice is smaller but the total amount of pie is unchanged.

Mechanically, a company announces a split ratio, like 2-for-1. Every shareholder who owns 1 share before the split owns 2 shares after it. Because the company itself hasn't become more or less valuable (it hasn't earned more money or taken on more debt), the exchange adjusts the share price down proportionally. If a stock traded at $100 before a 2-for-1 split, it opens around $50 after, so someone who had 1 share worth $100 now has 2 shares worth $50 each. Total value: unchanged.

The nuance that trips people up is thinking a split makes the company "worth less" or is a bad sign. A split isn't a value event at all, since market capitalization (price times total shares) stays the same, in theory, at the moment of the split. Companies usually split their stock when the price has climbed high enough that they think it looks expensive or unwieldy to smaller buyers, so a split is often a byproduct of good performance, not a judgment on the company. The opposite move, a reverse split (say 1-for-10), reduces share count and raises the price per share, and is often done by struggling companies trying to avoid a low share price rather than because anything improved.

All your existing orders, options contracts, and share counts get adjusted automatically by your broker and the exchange. The mechanics of that adjustment, including timing, rounding of fractional shares, and how open orders are handled, vary, so check with your specific broker around the split date.