{"id":466517,"date":"2022-10-24T09:11:32","date_gmt":"2022-10-24T08:11:32","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=466517"},"modified":"2026-02-02T11:40:00","modified_gmt":"2026-02-02T11:40:00","slug":"stock-splits","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/share-trading\/share-trading-guides\/share-trading-glossary\/stock-splits","title":{"rendered":"Stock splits explained"},"content":{"rendered":"

A \u201cstock split\u201d and a \u201creverse stock split\u201d are tools that public companies can use to adjust the number of shares in circulation. Understanding how these splits work will give you a better perspective on how this process can affect a stock\u2019s price. A good grasp on these will allow you to make more informed decisions when it comes to managing your portfolio<\/a>.<\/p>

What is a stock split?<\/h3>

This is when a publicly listed company increases the number of its shares by issuing additional shares to existing shareholders. It involves dividing a current share into pieces that become multiple individual shares.<\/p>

This is sometimes called a \u201cforward stock split\u201d. Taking this action effectively reduces a stock\u2019s price because the market capitalisation<\/a> stays the same but is divided by a larger number of shares. However, shareholders don\u2019t lose out. Because, the combined price of their new, lower-price shares will add up to be the same as the original pre-split stock price.<\/p>

For example, with a 2-for-1 split, you\u2019d receive one extra share for each share you own. In this scenario, the stock price will be halved so that after the split, each share will be worth half the pre-split price. But together, the value of your 2 shares will be the same as the original price of a single share before the split.<\/p>

What is a reverse stock split?<\/h3>

This involves reducing the number of shares in circulation. When a company declares a reverse stock split, it means a single outstanding share is converted into a fraction of a share. The size of your new fractional share<\/a> will depend on the size of the reverse split.<\/p>

For example, a 1-for-5 reverse split means that each share you own will now be worth 0.2 (one-fifth) of a share. So, to own a full single share of a stock after the split, you\u2019d need to have owned 5 individual shares before the reverse split.<\/p>

What is the main difference between the two?<\/h3>

A stock split will increase the number of shares available on the market, reducing the price of a single share. Whereas, a reverse stock split will decrease the number of shares in circulation, increasing the price of a single share. It\u2019s as simple as that.<\/p>

Stock split ratios<\/h3>

It\u2019s worth understanding how stock split ratios work. Whether a company decides on a regular stock split or a reverse stock split, it will select a ratio in advance that determines by how much the number of shares will increase or decrease.<\/p>

Why do stock splits occur?<\/h3>

The exact reason will vary. But, some of the most common motives for companies to engage in a stock split include the following:<\/p>