A Stock Split: What Is It?

An increase in the number of outstanding shares and a corresponding drop in the value of those shares is known as a stock split.

In the world of investment, a stock split occurs when a firm raises the number of shares it has outstanding without altering its overall market capitalization. Everything you need to know about them and the reasons it's crucial for investors to be aware of them is as follows:

• A stock split results in an increase in shares and a decrease in share price.
• A firm that divides two-for-one will have 1,000 shares at $10 instead of 500 shares at $20.
• Splits increase a stock's liquidity and reduce its price for regular investors.

How is it possible to get two million shares in an instant from one million?

Through a stock split! In the event that Walmart (NYSE: WMT) splits its stock two for one, giving you fifty shares of the business instead of one hundred.

Did you just make twice as much money?

The share price is split in half during a 2-for-1 stock split, hence the answer is no.

For example, if a share of Facebook costs $2,000—probably not very soon—then only those investors who can afford to pay more than $2,000 will be able to become shareholders. Therefore, the considerate guys in charge of Facebook may decide to divide shares three to one. In this case, one share was valued at $2000 prior to the split, and three shares were valued at $666.67 apiece following the split—the same difference. But now that there are more shares available, purchasing and selling them is much simpler.

Although a split doesn't affect the company's worth, it does make it appear more accessible to small investors, who then begin to purchase. For a brief period after the split, this may increase demand and raise the stock price.