What is a stock split
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.
$0 commissions on online stock, ETF, and options trades
Why choose TD Ameritrade for stock trading
- No subscription or platform fees - Get access to any of our trading platforms, streaming news, and expert research without an additional fee.
- Intelligent order routing - Enter stock orders knowing that we're committed to route your order quickly to pursue execution at the best available price.
- Powerful stock trading platforms - Use our Investing Web Platforms or thinkorswim Trading Platforms to help you reach your full trading potential.
- Free independent research - Gain market insight and ideas from third-party market gurus at Morningstar, CFRA (formerly S&P Capital IQ) and Marketedge®.