To improve a stock's liquidity, a company could choose corporate action to split its shares into more shares. A stock split does not fundamentally change the company's value. A stock split only results in the number of shares outstanding increasing by a specific multiple, the total dollar value of all shares outstanding remains the same.
A stock split is reflected by a term such as Term 5 for 1. This means that the client's initial volume will be multiplied by the term value amount and the initial opening price divided by the term value.
For example:
A client holding a Facebook Inc position of BUY 10 lots encounters a stock split of 5 for 1, and the market closes with an ASK price of 207.50. In this case, a new order will be opened at 10 * 5 = 50 lots and the opening price will reduce to 207.50 / 5 = $41.50.
What is a reverse stock split?
A reverse stock split is a type of corporate action that consolidates the number of existing shares into fewer shares with a higher price. A reverse stock split divides the existing total quantity of shares by a number such as five or ten, which would then be called a 1-for-5 or 1-for-10 reverse split, respectively. A reverse stock split is also known as a stock consolidation, stock merge, or share rollback and is the opposite of a stock split where a share is split or divided into multiple parts.
A reverse split is also reflected by a term such as Term 1 for 2. This means that the client's initial volume will be divided by the term value amount and initial opening price, multiplied by the term value.
For example:
A client holding a Facebook Inc position of BUY 20 lots encounters a reverse stock split of 1 for 2, and the market closes with an ASK price of 207.20. In this case, a new order will be opened at 20/2 = 10 lots, and the opening price will increase to 207.20 x 2 = $414.40.
Note: It's the client’s responsibility to keep informed about upcoming corporate actions and how these will affect their positions.
